Katerra, the Foxconn of Construction, Raises $865M from Softbank
Katerra is attempting to disrupt the construction industry “design-bid-build process” by creating a full-stack solution for the building process. The startup works with real estate developers to replace any or all of the disparate parts of the building supply chain, including architecture firms, contractors, subcontractors, engineers, and materials producers.
- The latest $865M investment from Softbank puts the valuation of the company at more than $3B. Katerra has picked up more than $1.3B in real estate projects ranging from residential to hospitality to student housing.
- Katerra takes orders directly from owners, uses its own software to create a cost-effective layout for the project, acquires the materials, assembles the building components in a factory, ships them to the site and assembles them there.
- The startup is led by Michael Marks, the former CEO of Flex, the go-to manufacturing contractor used by a number of tech companies like Microsoft, Cisco, and Hewlett-Packard.
The Problem in the Market
Michael Marks founded Katerra after learning about how difficult it is for big real estate developers to keep track of how much their projects cost. Marks explains the problem in Fortune:
After scouting architects to design their apartment complexes, these developers solicit general contractors who then quote them a price for their services. However, the general contractors also have their own network of sub-contractors like local electricians or plumbers who bid on their respective services. The developers only see how much their general contractors are quoting them, which include markups, and are unaware of details like how much the “subcontractor is paying for the toilet.
The construction has seen a number of startups chip away inefficiencies, streamline operations, standardize methods using modular techniques, and improve the IT issues facing the industry. Katerra attempts to do all of these things.If it succeeds, the market opportunity is massive; in 2016 alone, total construction spending topped $1 trillion.
Another trend in the industry is modular construction, which is an increasingly attractive option for developers and is widely predicted as one of the trends likely to gain momentum in 2018 and beyond. Modular construction can reduce construction time, reduce waste, and result in cost savings. Labor shortages in construction have propelled this method forward in the past year. One of the problem areas with modular construction is that you have to be doing a large volume of projects for efficiencies to pay off. Katerra’s pipeline of developers could provide that volume.
Katerra’s Solution
Katerra handles the architecture and engineering process at the start of the development process (eliminating the need for architects and engineers). Customers tell Katerra what type of housing they are trying to build (EG senior living, multi-family housing, dorms, residential), and Katerra provides basic layouts with its proprietary software.
The developer signs on to a final design, and then the Katerra manufactures its own components for the building, such as door frames, walls, interior and exterior wall panels, countertops, and floor systems. Katerra’s unique “integrated factory model enables a number of efficiencies. Katerra factories connect directly to Katerra job sites, “ensuring a seamless transition from manufacturing, through delivery and installation.” Components are currently produced in a factory in Phoenix, and the startup plans to have four or five more factories by the end of 2019.
The startup has also built a reliable network of suppliers from all over the world, which also keeps quality standards high, and the startup keeps costs down and achieves pricing power by bulk ordering materials for multiple real estate developments at one time.
In addition to its network of suppliers, the company is also innovating as a supplier of materials. Katerra recently broke ground on an $85M facility in Washington state that will be the world’s largest supplier of cross-laminated timber, a more environmentally friendly alternative to concrete and steel.
Katerra provides flexibility for real estate developers, who can utilize the full stack of services offered by Katerra or make use of select services. For instance, the Union South Bay residential apartment complex in Carson, Calif., works with Katerra on the building process, but the project was designed by an outside architecture firm (Architects Orange).
Katerra founder Michael Marks is well-positioned to disrupt the construction industry, coming as an outsider with extremely unique insights into supply chain innovation. He co-founded Flextronics (Flex), one of the world’s largest electronics manufacturers and the company that basically created the outsourced manufacturing model at the heart of the electronics industry. Marks has put together a fantastic board of advisors, including John Hui, head of strategy at Foxconn.
If all goes according to plan, Katerra could revolutionize supply chain management and radically transform construction and real estate development.
