Silicon Valley-based construction tech company Katerra announced a SoftBank-lead $865M Series D.
It’s common knowledge the construction industry is FUBAR. It’s second to last in terms of labor productivity of all major industries; it’s one of the least digitized major industries, spending <1% of revenue on R&D; and “large projects across asset classes typically take 20 percent longer to finish than scheduled and are up to 80 percent over budget,” according to McKinsey. Look no further than Denver’s unfinished VA hospital that’s gone $1 B (B as in boy) over budget as a case-in-point.
One of the many problems with construction is how analog and fragmented the industry is. Builders still unfold blueprints and push papers. They don’t use modeling tech that has been commonplace in the aerospace industry since Carter was in office.
Construction is also extremely dependent on human labor. Though it is a huge industry, it’s filled with many little and medium-sized players. The absence of an Apple or Amazon means no one is making investments in advanced manufacturing infrastructures (robotics, etc.), which have high up-front costs but would increase efficiency and reduce labor-dependency long term.
Also, humans can be hired and fired depending on market vicissitudes. It’s like using mercenaries to fight your battles rather than keeping a standing army. But the number of available mercenaries has been on the descent for some time, causing major increases in construction costs and project delays.
Founded in 2015 and HQ’d in Menlo Park, Katerra is a “technology company” (i.e. don’t call us a construction company) that wants to bring “the technology, design, and supply chain innovations that revolutionized Silicon Valley to the world of architecture and construction.”
Their menu of service and product offerings includes everything except making land. Whether you want building designs, engineering, GCs or labor, or source materials and subassemblies, Katerra is your integrated, tech-enabled, single-point-of-contact solution. They’ll also do soup-to-nuts buildings, though their current focus is timber-based, single-family and low-rise multifamily buildings of all stripes (i.e. they’re not doing steel and concrete high-rises).
They also make stuff. Their big manufacturing site in Phoenix promises to make all sorts of structural components like truss assemblies and framed walls, which can theoretically reduce human-labor dependence and make building stuff a lot faster and easier. And they say they are using SoftBank’s cash to open up a structural mass timber facility in Spokane, which could help them move into bigger buildings. All of this might help the U.S. ramp up its offsite construction manufacturing capabilities, which is woefully behind places like Japan and Sweden.
Where and when?
While they cite a $1.3B pipeline, Katerra doesn’t have a ton of projects as proofs of concept just yet. They list a number of in-progress projects on their site, but some (most? all?) of them appear to be associated with co-founder Fritz Wolff, who also runs a private equity firm with a huge multifamily portfolio scattered across the country.
But hey, you gotta start somewhere, and establishing the kind of tech, supply chains, labor pools, and advanced manufacturing capabilities of de-FUBARing the construction industry will entail a ton of money, a few early breaks, a lot of tooling up, and a bit of time.