Dreams of a disruptor: The VC-backed German start-up using tech to reinvent rental
20 April 2022
Founded less than two years ago, German start-up Flexcavo has already raised more than US$7.5m in seed funding from venture capitalist investors keen to rapidly expand its hybrid rental and software business. Co-founder Benedict Aicher tells Lucy Barnard how the company hopes to replicate the EquipmentShare model in Germany and beyond
Benedict Aicher, the youthful co-founder of German rental and telematics business Flexcavo, did not set out to fight international organised crime.
The 30-year-old managing director who gave up his PhD studies and consultant role at McKinsey & Co in 2020 to set up a business renting out construction equipment and selling his own specially-tailored software solutions to contractors, grins when asked about Flexcavo’s role in discovering the theft of a client’s loader from a site on the outskirts of Frankfurt and locating it more than a thousand kilometers away in Slovenia.
“It was quite exciting,” he says. “The native telematics platform was telling them the Volvo L 30 G wheel loader was still in Dietzenbach in Germany. However, they could see it was not there. When we hooked it up to our platform, we could not only track its coordinates down to local street names and warehouses in real time to find it, but also pinpoint when the machine was taken during the weekend.”
For Flexcavo’s client, German contractor Peter Gross Bau, the information meant that, rather than having to pay out for a replacement, it was able to pass on the data to the local police who then passed it on to their Slovenian colleagues so that the machine could be quickly seized and returned.
“Since that time, we have said ok, we are now also in the area of theft protection,” says Aicher. “If it happened again, alerts would go out if something unexpected happened because we know when a construction site is planned, we know if there are unusual movements. Then the foreman can have a look and say ok that excavator is moving strangely. Why is it on a Sunday being moved from A to B? So, it’s more of a cultural onboarding of our clients so that they know they hold the power of their whole fleet at their fingertips.”
Providing easily accessible digital information
Providing easily accessible digital information about not only the location of construction machinery, but also its condition, its level of efficiency as well as streamlining the way it can be accessed and delivered, is in fact at the heart of Flexcavo’s business offering.
Founded less than two years ago - in July 2020 - by Aicher and his former European School of Management and Technology classmate, chief technology officer, Leonhard Fricke, Flexcavo has been busy putting together a hybrid rental and software offer which they claim can accelerate the digitalisation of the construction industry.
Based along the same lines as US-based disruptor EquipmentShare, the company provides specially-designed apps and software linked to telematics systems fitted to its own rental fleet as well as to a contractor’s own equipment. Clients are able to rent equipment from the company’s bricks-and-mortar rental fleet, install and use the software only on their own machines, or opt for a combination of both.
“I was born and raised in a construction family - my father had run the family company, my brother is a civil engineer - so I was on a construction site since my early childhood days and I truly believe that the construction industry is a kind of mindset. The world belongs to those who build - that’s something I got told by my father in early childhood days,” says Aicher.
Currently numbering more than 400 machines, the young company is challenging many of the specialised rental companies dotted around the German industrial cities in terms of fleet size with comparable prices - daily rates start at around €71 a day for a Wacker Neuson DW 30 wheel loader and €85 for a Kubota U27-4 mini excavator.
“We started mainly in the earth moving sector, but we’re currently expanding into scissor lifts and telehandlers,” Aicher says, speaking on a video call from his office in Berlin. He says that the company plans to stock equipment up to 30 tonnes and plans to expand further into things like lighting towers and power generators in future.
Aicher estimates that the company has around 100 clients, split “a bit more on the rental side.” But it’s the opportunity to use its rental fleet as a way to upsell software to clients, fuelling the company’s rapid growth, that excites him.
“When clients start renting with us, obviously after three, four or five rentals, they start asking us, how can we manage a big fleet? I mean, you’re a young start-up, without tens of years of track record, how do you manage your machines?” he says. “And then we tell them, look we’re a machine owner, you’re a machine owner. We have software for machine owners. We use our own software so we walk the talk.”
“We know what it means to have assets. And then they get interested. And obviously we show them the software and say look, you can buy the same software. It doesn’t matter if I rent you a machine and you go and do something with that or you use your own machine. In the end the workflows and processes are quite similar and run in parallel.”
Up-selling the software
And Aicher says the argument also works the other way round, with the company’s software-only clients, who pay a subscription to hook their own machines up to the Flexcavo operating system, becoming more open to renting through them in future too.
By connecting their machines up to the software, Aicher says, the package enables contractors to not only keep track of their machines but also to automate the many back-office functions commonly still done in construction firms by filling in slips of paper, writing on white boards or phoning suppliers.
Aicher says that clients operating any of the 15,000 or so machines signed up to its operating system can request in real time to use their own machines. Requests go through to a “central dispatcher” which will either allocate idle machines or rent them externally. From then on, he says, the entire workflow to do with those machines in automated, from sending digital transportation documents to the logistics company to transport them to the site, to noting any damage on the machines, returning or repairing any faulty or unsuitable machines.
“Our strength is not being the best at telematics. There are other companies that do tracking, fleet management, accounting and project management. Our strength lies in workflow and process optimisation and automation,” Aicher says. “On those workflow levels, we compete with phone and with whiteboard. In the end we are obsessed with where can we save time for our clients, where can we reduce the error margin in terms of off-lining broken processes.”
Certainly it’s a sales pitch that has appealed to some pretty serious money men as the company has benefitted from a healthy appetite among a number of private equity outfits for construction tech.
In September 2021, Flexcavo closed a US$7.5m seed funding round which included participation from New York-based investment fund FJ Labs and VR Ventures, Europe’s largest fintech-focussed fund.
At the same time, the company also raised another $8m in a debt deal to buy machines, the lion’s share of which has been supplied by German cooperative bank Vereingte Volks und Raiffeisenbank. Separately, another German bank, afk, has agreed to lend capital to buy machinery and equipment from JCB while Wacker Neuson Finance has agreed to finance further Wacker Neuson machines.
And, in March the company was awarded a grant by the German government, which by 2025, will offset a total of $2.7m in personnel costs.
All of this means that, in the short time it has been in existence, Flexcavo has been able to expand far more rapidly than a traditional outfit. Already in just 18 months, the company has grown from two full time members of staff to more than 50 and from one machine in a small to more than 400.
VC capital fuels rapid expansion
Starting with a 500 sq m shed in Rosenheim to the southeast of Munich, the German region Aicher considers to currently have the most active construction industry, the company has expanded into a 4,500 sq m rental park in Maisach on the northwest outskirts of the city, growing larger than many of the company’s small specialised rental competitors.
And it doesn’t end there. In 2022, Flexcavo plans to further strengthen its southern region as well as adding further operations in the east near Berlin and the west around Cologne and Dusseldorf. By 2023, the company says it plans to start expanding internationally.
“One needs to understand that as a VC backed company, that allows us to grow faster and differently from other rental companies. I think that’s one of the key advantages we have as a small young company is being more agile than other players,” says Aicher.
“We’ve seen other venture-backed companies growing quite fast into other regions and we also do our own market research. We strategically think if we go to a market like France, which is Loxam-dominated, should we go there? Should we go to the Netherlands when it’s a Boels home territory. Or should we go to Italy?” Aicher says.
“It’s always a question of how do our customers actually want us to grow because we have customers we work with who are international. Do we see an opportunity to grow with a customer to a certain country? Does the customer have a sizeable opportunity? I would say, in theory we could grow all over Europe, but the software platform is easier to scale than the rental business.”
If such ambitious expansion plans appear unlikely, a quick look at the EquipmentShare model may convince otherwise. Starting in South Carolina in 2015, that business has grown to 60 locations in 25 US states in 2022.
“Our long-term ambition is to be Europe’s leading platform for enabling intelligent construction,” Aicher says.
Nonetheless, he admits that Flexcavo is always answerable to its investors who sooner or later hope to see a healthy return on their capital. He claims the company could “switch toward profitability within a couple of months” if it starts to reap less of a return on the cash put into it.
A strategic vision for growth
“Being VC backed allows us to continue on a growth path. So, then that’s a strategic question for us. When do we want to switch from high growth to profitability? The core business we see in the rental space is highly profitable. Do we want to grow for the next ten years at the same pace? It’s a question of market situation. If we see that a euro invested doesn’t give us the same growth as it did a year before, we then will switch mindset and say ok, now we will switch to profitability.”
And, Aicher adds, unlike many of the other tech start-ups into which VC firms are currently rushing to invest, the need for construction is set to remain.
“As we saw with the covid pandemic, construction is a stable industry,” he says. “It’s a real need. Do we need ten-minute delivery in 20 years? Let’s see. Do we need houses in 20 years? Yes. Will we fly in taxis in 20 years? Maybe. If so, we need somewhere to land those taxis. It has a certain relevance to society, put it that way.”