Posted on Tuesday, Jul 11th 2017
The construction sector is one of the largest in the world economy, with about $10 trillion spent on construction-related goods and services every year. However, according to a recent report from McKinsey Global Institute, the industry’s productivity has trailed that of other sectors for decades, and there is a $1.6 trillion opportunity to close the gap. Katerra is a recent entrant to the Billion Dollar Unicorn club that is attempting to bridge this gap with its technology.
Scottsdale, Arizona-based Katerra was founded in 2015 by Michael Marks, ex-CEO of technological manufacturer Flextronics, now known as Flex. Marks left Flex in 2006 and went on to become an investor and join the boards of few other companies like Zappos and GoPro. During this time, he met with a real estate investor friend who apprised him of the issues affecting big real estate developers in tracking project costs. Due to the wide network of general contractors and their sub-contractors involved in the development of a big project, builders are unable to see how much the components of the building cost. They thus find it difficult to keep track of the project costs.
Marks realized that there was a need to build a solution that could solve this issue for the builders. He set up Katerra as a technology-driven company to assist these builders. Katerra offers a fully integrated service model so that the builders don’t need to depend on multiple partners and vendors. Its solution helps remove unnecessary time and costs from building development, design, and construction while ensuring quality and sustainability of the project. By controlling the entire process, it hopes to remove the middlemen in the project and help manage costs.
Based on the nature of the building that the builders want to build, Katerra uses its software solutions to prepare suggested layouts and associated costs. The builders approve the design they like and Katerra assembles the housing components in its Phoenix factory and ships the prefabricated components to the building site.
Marks is able to leverage his expertise in the logistics and technology sectors to ensure that the company delivers projects in the most cost effective way. Katerra’s technology connects Building Information Modeling (BIM) tools and computational design directly to its ERP global supply chain infrastructure to simplify and reduce wastage in material ordering, manufacturing, tracking, and delivery. The integration helps Katerra encompass the entire building process – from design to bid to build – a rare feat in the industry. Katerra thus has several competitors within a segment, but none in the entire process.
Katerra currently focuses on the multi-family sector with plans to expand to other sectors. It claims to have worked on several projects already and is currently working on a 12-story town home complex in Portland and a 12-acre senior citizen facility in Seattle.
Katerra is privately held and does not disclose any financials. It recorded bookings of more than $500 million in 2016 and has grown to a team of over 550 employees. It has also become one of the top 25 multi-family general contractors in the US.
Katerra has been venture funded so far with $205 million raised from investors including DFJ Growth, Foxconn Technology Group, Greenoaks Capital, Khosla Ventures, Lucas Venture Group, Moore Capital, and Paxion Capital Partners. Its latest funding round was held in April this year when it raised $130 million at a valuation of more than $1 billion.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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