Katerra’s fall reminds us that it is (still) time to build
If there was one last home for startups, it would be full of anonymous graves. When a tech bet goes awry, the company is often sold and its founders hired without fanfare.
This is not the case for construction tech specialist Katerra, who is reportedly shutting down after years of reports that all is not well at the SoftBank-backed startup. Instead, all signs point to it being remembered as one of the most funded startups– lying somewhere between Theranos and Quibi.
At the end of 2019, Katerra claimed to have 8,000 employees, $ 1.7 billion in annual revenue and a pipeline of projects worth more than $ 15 billion. Moreover, it was hoping to become profitable by the end of 2020.
It was the official image, which turned out to be a mirage.
Much of what is known about behind-the-scenes operations is due to report by Cory Weinberg for The Information. Among the findings: projects have been delayed and abandoned, factories have been plagued by mishaps, and promises of low-cost delivery have been broken.
Most damning, Katerra is said to have exaggerated her earnings by releasing the numbers in reports to investors, who had invested more than $ 1 billion in the company. The activity reportedly sparked an SEC investigation.
An early Katerra employee told me that the startup’s challenges escalated after its Series D round, which was led by SoftBank and grossed at least $ 865 million. The company embarked on a wave of acquisitions, buying up construction companies and thus increasing its portfolio of projects.
Katerra lacked senior executives with in-depth knowledge of the construction industry, said the employee, who asked to remain anonymous while discussing a former employer. And as its ambitions grew, the company lost sight of its mission to solve the housing crisis.
These problems were compounded by a revolving door of executives: the company was run by three CEOs over a four-year period.
SoftBank began pushing for changes in 2019, and the board voted to remove CEO Michael Marks in 2020, according to The Information. This decision launched a recovery effort that would be financed by the Japanese investor.
SoftBank became majority shareholder last year after trying to bail out Katerra with $ 200 million, which severely diluted other shareholders, the Wall Street Journal reported. And Greensill Capital, backed by SoftBank, the UK lender that went bankrupt earlier this year, is said to have canceled $ 435 million of Katerra’s debt in exchange for a stake in the company.
The goal of vertically integrating a supply chain as complex as the construction industry was always going to be costly. But Katerra’s drama carries many of the hallmarks of other growth stories gone awry. Poor management, insufficient investor oversight, and technology that was not ready for prime time seems to have been a deadly cocktail.
What makes Katerra’s story particularly disappointing is that her mission was noble.
The company has promised to reduce the cost and complexity of large buildings by using prefabricated modular units. It could have been a major test of how technology can be used against chronic housing shortages in large cities.
The rallying cry of Andreessen Horowitz co-founder Marc Andreessen during the pandemic, published a little over a year ago, was that “it’s time to build”. He didn’t mean it metaphorically.
“We can’t build enough housing in our cities with booming economic potential, which is causing housing prices to skyrocket in places like San Francisco, making it nearly impossible for ordinary people to move in and take over. jobs of the future, ”Andreessen wrote.
With the prospect of multi-year infrastructure spending on the horizon, there has hardly been a better time to fund bold new ways to build. Fortunately, construction technology companies continue to innovate, many of which are funded by venture capital funds.
Prescient creates multi-family buildings from recycled lightweight steel that is prefabricated off-site. The startup raised $ 190 million from construction firm JE Dunn and Eldridge last month.
FactoryOS, another offsite construction specialist, raised $ 60 million this year. With a new $ 40 million Series B, Blox is creating a niche in building healthcare facilities from modular units. Mighty Buildings has raised $ 40 million to support its 3D printing technology for homes. And Canvas recently raised $ 24 million to make robots capable of finishing drywall.
Hopefully, these companies and others will bring about the great disruption that Katerra promised. They could even do it without spending over a billion dollars.
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