Katerra

What did it do?

Katerra was a technology-driven construction company that manufactured large building components in factories and assembled them on site. Particularly on multi-storey residential projects, it produced entire walls, windows included, in its plants, and it also made mass timber products. On many projects it acted as manufacturer, architect and contractor at once, usually contracting directly with property owners.

Why did it shut down?

The company quickly grew into a sprawling organisation with factories, architecture teams and thousands of employees. In December 2019 it had to lay off around 200 people and close its Phoenix factory. In May 2020 the CEO changed alongside a USD 200 million capital injection, and SoftBank put in money again in December 2020 to rescue the company. In June 2021 Katerra cited the COVID-19 pandemic and its inability to raise new capital after the collapse of its lender, Greensill Capital, as the reasons for its bankruptcy. The remaining employees were laid off without being paid their accrued holiday pay or severance.

The story

A building's wall, windows and all, is made in a factory, brought to the site by lorry and fitted into place. That was Katerra's promise to the construction industry: to turn putting up buildings into an industrial process, like manufacturing an electronic device. The company was founded in 2015 by Michael Marks, former CEO of Flextronics and one-time interim CEO of Tesla, and Fritz Wolff, chairman of a company called The Wolff Co.

The idea attracted big money fast. In January 2018 an USD 865 million investment arrived, led by SoftBank's Vision Fund. That same year Katerra bought MGA, an architecture firm specialising in tall timber buildings and mass timber construction. By the end of 2018 it had 7,500 employees and 700 projects under way, and planned to set up 14 distribution centres across the country. LinkedIn had put it on its 2017 list of the best start-ups to work for.

Doing everything at once, though, was expensive. In December 2019 it announced around 200 layoffs and the closure of its Phoenix factory; production moved to its lower-cost, highly automated plant in Tracy. In May 2020 management changed alongside a USD 200 million capital injection, and Paal Kibsgaard, former CEO of Schlumberger, replaced Marks. SoftBank made another rescue investment in December 2020; the total the Vision Fund had put into Katerra was reported to exceed USD 2 billion.

The final blow came on the financing side. When its lender, Greensill Capital, collapsed, Katerra could not find new capital. In June 2021 the company cited the COVID-19 pandemic and its inability to raise money after Greensill's collapse as the reasons for its bankruptcy. The remaining employees were laid off without being paid the holiday pay and severance they had earned; some assets in regions such as the Middle East lived on as independent companies.

Katerra's story shows how much capital it burns to try to transform a local, fragmented industry such as construction in a single move. Growing factories, design and construction sites under one roof looked efficient on paper; in practice every link brought its own problems, and financing them all came down to the patience of a single investor.

Lessons for founders

• If you are trying to transform a traditional industry through vertical integration, prove profitability in one link of the chain first rather than building every link at once.
• Do not tie your financing to a single big investor or a single lender; Greensill's collapse took away Katerra's last lifeline.
• Even in a crisis, prioritise the payments your employees are owed; unpaid severance follows founders' reputations long after the company has closed.

Sources

1. Katerra (Wikipedia)
2. SoftBank-backed Katerra files for bankruptcy (Financial Times, 2021-06-07)
3. SoftBank pours $865 million into Katerra, a start-up making buildings in a factory (CNBC, 2018-01-24)
4. SoftBank-Backed Katerra to Shut Down (The Information, 2021-06-01)

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