PCG Connect

Hey, everyone. It's Mel. We're back in the studio for another exciting 1 PCG series episode. Today, we're sitting down with 2 special guests, president and CEO, Jason Hendricks, and the VP of operations finance, Brett Dahmer. We will discuss the exciting new entity formed at Performance Contracting called Barrier Cube Ventures.

Today, we'll learn more about that and what went into the decision to start this initiative. What does BCG want to accomplish with this partnership, and how will it affect our company as a whole? So without further ado, let's jump right into it. So today, we're gonna talk about the Barrier Cube Ventures initiative. The concept was unveiled, in May at LEADCON, and it's something new and different for us.

And so as we'd expect from owners, people have some questions. They wanna learn a little bit more about it. So, luckily, I was able to scrounge around and find 2 people that know a lot about it. Unfortunately, they weren't available, so I have Jason Hendricks and Brett Dahmer here in the studio with us. Welcome.

Welcome, guys.

Thank you, Mel.

Thank you.

Please don't fire me. So let's start off, like, really, really broad. So just in general, general definition, what is a venture capital?

Venture capital is just another vehicle, largely to invest in privately held organizations, and it's more synonymous with the technology space. And it would be no different than, you know, how it is, is acting here within performance contracting. But essentially, it's a it's a firm or a syndicate of money that is pulled together to invest in, we'll just call it technology companies at various various stages. At the very beginning all the way up to pre IPO, and everything in between.

Okay. So the Barrier Cube Venture here, now that definition, you kinda already answered it, but just to expand on that.

So so for us, it's, I guess, Barrier Cube Ventures was an entity that we formed to invest in and in partnership with a venture capital partner. So Performance Contracting isn't a venture capitalist.

Right.

We are using our experience in the industry in partnership with people that are experienced in the venture capital space, more specifically the AEC space or the build environment, to really marry those two expertise together to help us continue down this path of innovation and that looks very differently. Some of it is, you know, homegrown innovation, some of it is leveraging other firms and other experts in this space, construction and technology, bringing that together, to help either move the industry forward or, allow us to innovate and bring things inside the organization that would benefit our, performance contracting.

Okay. So where was the idea born? Well, first of all, for people that don't know, Barrier Cube, that's actually our logo. That is a Barrier Cube. So that's kind of where that comes from.

But where was the idea born to pursue this, Brett?

So I think we're seeing a lot of investment over the last several years in the construction industry. The venture capital and private equity firms are dumping 1,000,000,000 and 1,000,000,000 of dollars into improving and changing the industry. So we weren't really actively participating in that space, yet we were helping a lot of these start up companies, Xtracker, Procore, give input on their products only to watch them grow their product, improve their product, and then sell their product. There was a lot of things, I guess, running in parallel. At the same time, I think Jason was seeing a lot more exposure and conversation to these new kinda specialty boutique VC firms that were highly leveraged in the build environment.

So a lot of our customers, a lot of owner groups, a lot of development groups, all pooling significant funds to invest in better ways to build. And, honestly, it came together really quickly as a kind of a post COVID investment. And within a few years, some of these firms had grown to or some some of these, venture capital firms, to be clear, had grown to 100 of 1,000,000 of dollars of capital that they were pushing into the industry. So you had these two things coming together, and we were trying to find our place in it, quite honestly. Mhmm.

Some of these matured very quickly. Buy ins became, very high thresholds that we weren't really comfortable jumping into that way. But we felt this would be a good way for us to take a step forward, help startups or seed level companies grow products that not only help us, but help the industry. And at the same time, we're expecting now to get a return on that investment.

Yeah. So like you mentioned, Procore, you mentioned a couple of things there. We've already kind of been doing this. We just haven't been reaping the, you know, potential reward at the end of things for it. So you mentioned a third party, that we're using a third party.

Can you share who it is and our relationship, how that that dynamic works?

Yeah. So, the partnership that we have is with Shadow Ventures. And so they are a VC firm based out of Atlanta, Georgia. And, as Brett mentioned, it's a smaller boutique, firm, that I think really aligns with us. They're not looking to make these huge big splashes.

They're looking to vest early on. And, we found the introduction through actually one of our customers. So it was a natural fit. It gave us a way to, I think accomplish 2 things. 1, we had a trusted partner, who I think was very similar from a structure standpoint.

They're a general contractor, but from employee ownership, etcetera, there was a lot of parallels that we we could ask like, well, how does this resonate inside your organization, similar cultures, similar ownership structure? So there was a lot of direct intel we could pull from them. And then I think secondarily, some of these firms that probably were early out of the gate, they were demanding a pretty a pretty tall entry fee and something that we weren't willing to to bite off.

Yeah. Kinda like a buy in.

Yeah. I mean, essentially, you know, the the price to play was just too steep for us, especially for something that we didn't really have a lot of experience in or or very little at all. So this was just a nice entry point for us and, they're an excellent partner for us to to get started with. It's it's been great so far. We spent a lot of time, you know, on the front end.

They were very gracious with their time just, you know, in in a lot of respects, respects, we were just very ignorant or at least we played that role, very well, and asked a lot of questions because this is the first time that we've ever gone down this path, and and we wanted to make sure that we were comfortable with the people that we were partnering with and and inevitably entrusting them, to, make investments on our behalf.

So before we get down into it, I think just what are we talking here? Like how much how much money are we are we talking about just for people that are listening? Because there can be a big difference in in how much we're, actually putting into this.

So right now, we, we are under a 7 figure threshold. We have gotten it approved by leadership group and and the board, as to what this could be, but right now, our intentions are to keep this small, to get educated on the space and understand it, for a little bit longer before we take any bigger positions.

Okay. So how we can get into other things, but just from a high level, how would you see it working cradle to grave whenever we would engage?

So what this looks like for us, if you think of cradle to the grave, we got into this about 4 months ago with our initial investment. Since that time, we've had weekly interactions with the shadow team. They reach out to us. We've reached out to them. We've had the opportunity to review 3 investments that they're looking at.

They've since made 2 of those investments and got those done. Quarterly, we have an LP meeting. We're considered a limited partner. There's a group of about 25 other limited partners that shape this fund. And then annually, Jason and I will have the opportunity to attend their LP meeting.

And you get a general state of the union, as to how the fund's performing, the economic outlook, the opportunities in pipeline, some of their targets and initiatives for the next year. So that's kinda what the annual, I guess, involvement from our side will look like. We we do look to try to get as much out of this as we can. We were able to, negotiate a position on the advisory board for there. So we will be represented on that board, which will have a little bit more insights into the investments and maybe, the opportunities surrounding the investments.

Also will help us learn more about our other LP partners, which we're very interested to to make more connections and network in that space, not only for PCI's advantage from a customer standpoint, but understanding more about the developers and owners and where they are interested in in making investments in the space. Yeah.

So it's kinda like seeing behind the curtain on innovations that are, you know, further out than what we were able to see before. Yeah. And

and where people are are putting their money.

Yeah. So investment wise, like, we've talked obviously the physical investment of money. But what about time from people here? Like, will anyone need to invest any time from the branches where we're actually helping and giving feedback on some of the, technology or products that we're looking at?

I think in time, that's going to happen. Right now, we haven't had a bunch of that. There is one investment opportunity coming down the pipe that I think actually is gonna have a lot of strong parallels with with some of our product lines. So in that instance, I actually would expect that, PCI and some of our some of our branch employees will will be able to have some input and some interaction with some of these investments. But, these guys are in investing in anything from smart sensors in buildings to electrification for electric vehicles at a Kroger.

Right? So their scope is really wide, and not all of them are gonna fall right in line with PCI's direct product lines or anything else.

So what's the vetting process like? Like, you know, obviously, we have multiple opportunities of what we want to pursue. What does that look like?

So for us, Shadow really, is the filter for that. They run several 100 opportunities through their process of evaluation. They have an incubator that we actually found really interesting and maybe attracted us to their firm to partner with. But they do a lot of the understanding what the product is, what the idea is. They do a lot of research if it's technology based on the actual coding itself and trying to understand if there is an really, special intellectual property that they can add value or if it will just be repeated by others.

They try to understand what the market is because they're not looking for a 10 x return. They're looking for a 100 x return. You know, venture capital at this level, they're okay with 9 out of 10 failing as long as 1 out of 10 is is a 100 or 200 times return. That's really what they're after. So it's kind of a different space.

We don't like to lose at anything. And when we do lose at 1 out of 99 things, we beat ourselves up about it. Their game is completely opposite. But they do invest in these companies. They they typically will get a board seat, and so they have some influence over the trajectory of the company and and position themselves pretty well to protect their investment.

So what have we invested already in any companies or technologies, anything in process or on the horizon that you can talk about?

There have been 2, investments and positions taken by Shadow. So what that looks like for us, they have gone through their clearing process. They have valued the company. And both Shadow and then the target investment company have come to terms on what that what that equity stake looks like. And then from there, they come back to the LPs, the partners, the investors, and they'll do a capital call.

So that's where PCI gets to pull out our check or Barrier Cube actually gets to pull out our our checkbook and then fund Shadow who then funds the the investment target. They have made 2 investments, 1 in a company called Spaces and one in a company called OpenSpace. Both tools, one is an architectural kinda think of it as a SketchUp, Google SketchUp type tool.

Okay.

And the other, monitors spaces and buildings to provide data to owners on when spaces are occupied, when they can shut down lighting, HVAC, and all those sorts of things to lower their total cost of ownership.

That's really cool. Yeah. So the LPs are is, is it equal how much you invest or does it vary between all the different LPs when something is pursued?

So it varies, not so much on the pursuit. They certainly are connected to their LPs. They know what our line of work is and our interests are. And so I would say that there's a understanding that if there's an opportunity to further thing, for example, in the interior systems business, they would certainly, check-in with us and and take our pulse on what that level of interest would be. But everyone has a different investment, commitment, and, you know, we've set one that that we feel is appropriate for PCI.

We don't know what the other LPs have committed. We know in total what the fund value is and what percentage we are of that. But as far as individual stakeholders, we don't know what what other people have committed in the fund.

And and I think there was a couple of things, you know, as we thought, where do we wanna land in this space? Being in our first kind of investment here, we as we were spending time with with Shadow, we had an opportunity to kind of better learn, well, what does the advisory board look like? How do we get a position on that? And luckily, the percentage that we have invested in the fund lines up with what they would, I guess, want out of, out of an advisory member. So thankfully, those 2 those 2 things lined up.

And and like Brett mentioned, it gives us, I think, a greater opportunity to kinda see behind the curtains. Mhmm. But, the other thing that I know it's kind of been interchanged here, whether it's performance contracting or Barrier Cube. So early on, we were very intentional on how we wanted to be named as part of this transaction, and it wasn't so much to just have some, you know, I guess, marketing spin on

Right.

On on the on the cap table for this investment. It was more of how do we have some anonymity as we enter this space because as Brett mentioned, we invest through shadow, but there's also an opportunity to do follow on if there are investments that we feel are more specific to what we do as an organization. And in those instances, when we would make a direct investment, we would be making a direct investment as Barrier Cube Ventures Yeah. Outside of Shadow Park, you know, Shadow Ventures. So in that case, in in some respects, we could be making an investment that would be in conflict with some of our business partners and some of their practices.

So where we can, we wanted to try to create some separation there.

Yeah. That makes sense. So so you mentioned, you know, some GCs are involved in this, but, you know, what are other specialty contractors doing? Are we kind of leading you know, are we ahead of the curve here and kind of, forming a new path, or do you do we even know?

I I'd probably say it's it's more of the latter. What I can more directly answer is that we are the only specialty contractor within the, the LP Okay. Packed for seed fund 2, which is a nice spot to be in. You know, we have the ability to, when stuff comes up specific to either our trades that we, or product lines that we work with or maybe just in the specialty space in in general, we would have like, as Brett mentioned, we would probably have more of a direct contact with them, and they would really look to us to try to help gauge, like, what does this look like? How could this impact the industry as a, you know, as a specialty trades contractor?

How would you utilize a technology like this or an innovation like this? So, you know, again, we we kinda find ourselves in a in a pretty unique spot here. My experience up to this point or our experience up to this point, there's probably more general contractors playing in the space than specialty subcontractors, but I know Brett has been involved in going to a couple of industry events outside of our partnership here, with some other funds, that he may have some other experience where he's bumped into some of our, I guess, competitors.

Yeah. Honestly, I don't I don't think that we've bumped into too many specialties. It is still heavily dominated and and participated in at the GC level and a lot of owner groups. And the other thing I was kinda surprised at some of the ones that I've been to is there's even university endowments, that are heavy in the A and E space that have also invested in these. So really interesting mix of people, that have come together on this.

Yeah. Sitting here listening, and, you know, I'm learning just with everybody else, and it's what strikes me is this is kind of, the new version of entrepreneurial spirit. It's just adding on, to what we've already been doing, but in a different way than we've done it before. So when you when you started this, what is, in your mind, like, what does success look like 1 to 3 years out? How will you determine, you know, wow.

That was a we're the smartest people on the planet or, like, well, maybe we need to go a different direction here.

Well, I think going back to something that Brett mentioned, you know, again, the what success is defined in this space is very different than we would define success. So I think really trying to level set expectations for our organization. You know, I think the only thing that makes headline news on the venture side is any of these these companies that, you know, have this massive IPO and, you know, it's like a 1000x return and, but there's 99 others that have been just complete disasters. So I think really trying to I think more specifically, when we got into this, really trying to make sure that we set our expectations on what this is gonna look like. You know, you mentioned 3 to 5 years.

Their exit horizon is 7 years. So Okay. This is more of a longer term play. I think Brett, you know, has mentioned a couple of times. It's really, I think, in the more near term, networking information, trying to see where the puck's going in our our industry and, trying to figure out, do we wanna go there, or do we wanna call an audible and go another way?

So, I think there's a lot of that that we will see a more direct benefit more early on. You know, again, I think it's a really interesting time to enter and venture. Over the last probably 18 to 24 months, it's it's got a pretty good beat down. And so it's probably a great time for a new investor to enter, just from a pure valuation standpoint and more of a just there's a, I guess, a greater sense of reality in in what investments look like. And it's probably more aligned with kind of where we're at and just we wanna walk before we run.

But it's gonna be heavy on the the information, the networking, as we pick up momentum, through this experience.

And if we get lucky, even better. Right?

For sure. Yeah. Absolutely.

So this was actually a question. So we announced it at leadcon, and then we had a q and a, and, you know, people were able to, text in questions. And so this was actually one from there. So if you're wondering if we ever go back and look at those questions, the answer is yes. And somebody there asked, so you mentioned it's a separate entity.

Right? We have it set up as a different company. So will it be tied directly to the company ownership for for profit and loss, and how does that work?

The short of it is yes. Right? It's it's gonna be part of our consolidated financial statements.

Okay. And then how does it work? I know, you touched on it, like, with the valuation process and how do we do we hold back money in in order to put over here? How does that work?

So the valuation, for the investment targets or the valuation of PCG in total?

For, like, our valuation for the stock and dividend. Correct.

So in total, again, all rolls up to the same same financials. Very little impact. I would say at this point, we've yeah. It would be an immaterial side note at this point just because our level of investment is is so small, and and we don't ever intend, I think, at this point for this to be in any way substantial enough that it would be material to the valuation of the organization.

Okay. So if there's somebody listening out there that's, you know, hey. I I know somebody that knows someone, and this seems like it would be a really good investment. You know, they're closer to it. How do they what can they do?

Do they call you Brad or j I mean, like, how can you bring, like, some potential ideas to the surface then, I guess, we'd give them to the you know, to Shadow to that?

Hey. That's a great question. And we've had this similar situation. There was a company here locally, called LaborChart, and Gabe Davelier and our superintendent over in Kansas City helped him build his, his technology over the last 5 or 7 years and just recently sold to Procore. Right?

So we we had partnered with them for a long time, never made a financial investment, but we certainly invested a lot of time. So I think when we see those opportunities in our marketplace or industry or whatever that looks like, I do think there is an opportunity for performance contracting to, bring those to light. And how we move forward, we would we would probably need to figure that out, but I do think that it is something that our leadership team is is open to to making investments in our industry. We have chosen at this point to do that through Shadow and Barrier Cube. That's gonna be our vehicle, as of now.

But I think there is an opportunity in the future to to take a different position and and to partner not only with our expertise, but in some instances, but potentially financially. So I'm always wide open to hearing it. I think our vice presidents or our innovations teams that are, working in our operations also would be a good conduit to bring that stuff up.

K. So how, how will you communicate this? So I mentioned before, like, owners, you know, we're all naturally curious about it. So what's the plan on updates, you know, to the organization of is it yearly? Are we kinda open like, hey, here's where we've invested.

Here's how things are, are going with this.

I would see probably some sort of annual update, you know, something maybe again at LEADCON. It would probably be in an event like that. And and again, we can talk about, you know, where we're at, maybe investments that have been made, any sort of just general, hey, what is going on in that space relative to our industry? But like you said, outside of that, it's, you know, you're you're kind of betting more for the long long term with with some of these, you know, or certainly our partnership with with Shadow. And so I wouldn't see it as we're going to have this, you know, investor relations call every quarter and we're going to be given updates on this or that.

But it's probably gonna be more of an on an annual cadence.

Okay. What's the what's the commitment? How long you mentioned it 7 years or so. Like, how long are we gonna let it ride before we're like, is this working and evaluate? Like, do we continue going, or do we maybe go a different direction?

So I guess some of that's TBD, very new space for us, but I will tell you it's not like we'll be sitting in the dark for several years wondering if this is working or not. There is regular communication on valuation of these investments that Shadow is making on the behalf of Barrier Q. So we will have an idea as to how these companies are growing and performing and how our overall investment is doing. So I think we'll be able to pivot, that might be, hey. Let's take a position in another fund.

That may be, hey. We have an opportunity to contribute more capital to Shadow in a in a different seed fund. There's a lot of opportunities for us to pivot from here. This isn't a place where you can liquidate quickly. Right.

These companies obviously are reaching out for capital because they don't have it. So, it is something that we are making a long term commitment, but we will have a good, I think, meter on how it's going, every quarter at a minimum, but but probably even more regular than that.

Is there anything I'm looking through here. It looks like I touched on pretty much everything. I guess, like, when you're what do you want people to know? What do you want them to remember, you know, from our conversation here when it comes to, Barrier Cube Venture?

I think it's more broadly, you know, how we're viewing innovation and just curiosity in our in our industry, and and that looks very different. Or there's a lot of different ways to tackle that that equation. And this is just another tool in the in the toolbox, so to speak, for us to play in this space. So, you know, I think it's it's exciting. I think it's, it's a great opportunity for us to continue to learn.

I think it's a great opportunity for us to continue to network and and get more entrenched in our industry and and ways that, others are trying to either advance it or disrupt it. And again, I think that's all good intel for us as we strategically try to say, how do we continue to evolve as an organization and play in a in a broader ecosystem? And so I think there's a lot of opportunity here with with Barrier Cube, and, as Brett mentioned, I think there is a little bit of TBD, but kind of leave that up to the curiosity of of our employee owners and and just, I think, the general spirit of, the organization to continue to navigate this this course forward.

Yeah. You know, coming in today, the the biggest thing for me that added clarity was the Shadow you know, using Shadow as a partner. Because when I first heard it, I thought we were gonna be doing all of this ourselves. I'm like, geez, how many people are we gonna hire to run this thing? So that was a huge light bulb moment for me.

Brett, what do you want people to know? Anything you wanna add on there?

No. I think Jason said it well. It's a really exciting new opportunity for us to to see our our construction environment a little differently. There is change coming in the industry. We've seen it, over the last 5 10 years, and it's not gonna slow down.

There's gonna continue to be smarter building products, better building products, better means and methods, new technologies. And I think the more we can strategically position our company, the more successful we'll be in the long term.

Well said. I wanna thank both of you for, coming in and joining us today. And today's a Friday, so have a great weekend.