The old construction adage is that you can have it faster, cheaper, and better, as long as you only pick two out of three. But the construction tech startup Katerra is aiming to change that. The Menlo Park, CA-based company this week announced an $865M Series D investment from SoftBank’s Vision Fund, the $100B venture capital fund that has sunk billions into companies like WeWork and the indoor farmer Plenty. This comes on the heels of a $130M Series C round last spring at a $1B valuation.
Founded in 2015, Katerra describes itself as a tech company that is “optimizing the way we develop, design, and construct buildings.” Using its proprietary software and hardware technology, the company is applying principles that its founders honed manufacturing electronics. It treats real estate development and construction like a standardized manufacturing process rather than an endless string of one-off projects. (An important pivot, and one we discuss in more detail below.)
The company’s goal is to integrate a project’s design, its material and equipment supply chains, and on-site construction efforts in order to deliver projects more quickly, less expensively, and without sacrificing quality. “We leverage technology and end-to-end control to move from individual project thinking to a systems approach,” it says.
For example, Katerra sources materials from its own network of suppliers globally. It has factories in Phoenix and Spokane where different building components are assembled. The company has also developed its own analytics platform which aggregates data from its real estate and construction operations, connects with its staff in the field, and uses Internet of Things tools to streamline construction operations and track equipment and inventory.
This round of funding will allow Katerra to build four more factories and invest in research and development to further refine its technologies.
More from the New York Times:
“The idea . . . is to approach construction more like a factory run by Toyota, which is known for efficient mass production, rather than the current method of assembling disparate components in a less organized fashion. The business model has similarities to that of the electronics industry, which [its founders] and one of the company’s biggest investors, Foxconn, know well.
The idea is to not have every building be a one-off prototype, the company says.
‘It’s shocking how poorly things work,’ [company founder] Mr. Marks said of the construction industry in a telephone interview. He added, ‘There’s a lack of quality processes throughout the system.’
By contrast, Katerra’s approach, he contends, allows clients to save money and erect buildings like offices and multifamily homes more quickly.”
Katerra is losing money but believes it will be profitable next year. It is currently working with large real estate development companies on multi-unit residential and commercial buildings, but that could change with the latest round of SoftBank funding.
Analysis from AEC Labs
The construction industry, of course, is highly fractured and segmented by market sector and geography. This makes truly integrated delivery – development, design, and construction – highly challenging. And there is no mention of how the company plans to address licensing and procurement laws and regulations that vary widely from jurisdiction to jurisdiction – and in some places restrict or even prohibit single-point-of-contract delivery like design-build.
But Katerra’s plans sound similar to me in some ways to how Amazon only hit its stride once it stopped thinking of itself as a retailer (hiring Walmart employees) and more like a manufacturing company (assembling each package in the FCs using lean manufacturing principles rather than retail processes that were implemented by executives who actually had little to no retail industry experience.)
So it will be interesting to see whether Katerra can scale beyond multi-family residential or industrial and commercial buildings. Certainly the heavy civil and industrial markets could benefit from lower costs and streamlined procurement, but whether Katerra can adapt its business models to those sectors (or if it’s even interested in doing so) remains to be seen.
But an industry that has suffered for far too long in terms of innovation, efficiency, and productivity can only benefit from kaizen-, lean-, and six sigma-style thinking. So we’ll wait and see if Katerra’s Series D funding is able to kickstart a revolution in project delivery mechanisms and how the construction industry thinks about organizing itself more generally.
Stay tuned as we’ll be following Katerra and these important issues closely in the months ahead here at AEC Labs.