Katerra

Katerra was a construction startup founded in 2015 that aimed to vertically integrate design, manufacturing, and construction.²⁵ The company raised $1.6 billion in funding, primarily from SoftBank's Vision Fund, and was valued at $3 billion in 2018.²⁸⁹ Katerra filed for Chapter 11 bankruptcy in June 2021 and shut down operations.¹⁴¹³

Timeline

Money raised

Katerra raised a total of $1.6 billion across 12 funding rounds.² The first funding round grew to $75 million, according to the Silicon Valley Business Journal.¹⁰ In April 2017, Katerra raised $130 million in a Series C round led by Greenoaks Capital at a valuation exceeding $1 billion.⁹ In January 2018, Katerra raised $865 million in a Series D round led by SoftBank Vision Fund at a valuation of over $3 billion.⁸⁹¹¹ In May 2020, SoftBank invested $200 million in Katerra.⁵⁹ In December 2020, SoftBank invested another $200 million and Greensill Capital canceled $435 million in debt for a 5% equity stake.²⁵⁹ Katerra secured $35 million in debtor-in-possession financing upon its bankruptcy filing.⁴

Investors named in the sources: SoftBank Vision Fund²⁸¹¹, Greenoaks Capital⁹, Foxconn⁹, Khosla Ventures⁹, DFJ Growth⁹, Celesta Capital⁹, RiverPark Ventures⁹, DivcoWest⁹, Navitas Capital⁹, Greensill Capital²⁵.

What happened

Katerra was founded in 2015 by Fritz Wolff, Jim Davidson, and Michael Marks.²⁷ The company aimed to be a vertically integrated construction project management company, handling design, manufacturing, and construction.²⁵ Katerra sought to disrupt the $12 trillion construction industry by using technology and prefabrication to reduce costs.²⁶ Michael Marks was the former CEO of Flextronics, and investors believed he could transfer manufacturing expertise to construction.² Katerra raised $75 million in its first funding round by March 2016.¹⁰

In April 2017, Katerra raised $130 million in a Series C round at a valuation exceeding $1 billion.⁹ In January 2018, Katerra raised $865 million in a Series D round led by SoftBank Vision Fund at a valuation of over $3 billion.⁸⁹¹¹ Katerra used the funding to expand operations, acquire companies, and build manufacturing facilities.²⁴ The company acquired more than 20 companies, including architectural firms and construction companies.² Katerra experienced significant financial losses, reportedly nearly $2.8 billion in 2018, 2019, and 2020.⁴

The company faced challenges including cost overruns, project delays, and quality issues.⁴⁵ Katerra had a rotating cast of CEOs, with Michael Marks stepping down in spring 2020.²⁴ Paal Kibsgaard became CEO in mid-2020, and SoftBank invested $200 million in May 2020.⁵⁹ In December 2020, SoftBank invested another $200 million and Greensill Capital canceled $435 million in debt for a 5% stake.²⁵⁹ Despite the bailout, Katerra continued to struggle and told employees on June 1, 2021, that it would shut down.³⁴⁶

Katerra ceased most U.S. operations, winding down more than 80 projects and terminating 730 of 1,300 U.S. employees.⁴ On June 6, 2021, Katerra Inc. and 32 affiliated debtors filed for Chapter 11 bankruptcy in the Southern District of Texas.⁴¹³ The company estimated liabilities of $1 billion to $10 billion and assets of $500 million to $1 billion.⁴ Katerra secured $35 million in debtor-in-possession financing to fund operations during bankruptcy.⁴ Katerra filed its Joint Plan of Reorganization and Disclosure Statement on August 13, 2021.¹³

The bankruptcy court confirmed the Chapter 11 plan on October 21, 2021.¹³ The plan became effective on October 29, 2021, and Daniel R. Williams was appointed Plan Administrator.¹³¹⁵ Katerra's Spokane Valley cross-laminated timber plant closed and laid off about 63 employees in June 2021.⁷ Katerra laid off 117 workers in Seattle, according to a WARN notice.⁷ The company told employees it could not pay severance or unused paid time off.²⁷

Some previously acquired companies, such as Equilibrium Consulting and MGA, continued to work independently.² Katerra's failure caused trouble for existing clients, with potential delays in project management transfers.² The company faced an investigation into its accounting practices by the SEC and its board of directors.⁶ Katerra had employed more than 8,000 people worldwide, but the number dwindled to 2,400 by mid-2021.⁷ The company's assets were sold, including the Tracy, California facility for $21.25 million.¹

Volumetric Building Companies bought Katerra's assets, according to Failory.² Katerra's failure was attributed to lack of focus, overexpansion, and failure to achieve product-market fit.²⁵ The company's collapse was also linked to the COVID-19 pandemic, rising material costs, and the insolvency of lender Greensill Capital.⁴⁷ Katerra's bankruptcy plan administrator, Daniel R. Williams, continued to pursue legal actions on behalf of the estate.¹⁵¹⁶ In March 2023, Katerra sued former CFO Matthew Marsh to recover alleged avoidable transfers and bonuses.¹⁶

Legal outcomes

• filedKaterra Inc. and 32 affiliated debtors filed voluntary petitions for Chapter 11 bankruptcy on June 6, 2021.¹³
• filedThe Securities and Exchange Commission and Katerra's board of directors investigated the company's accounting practices.⁶

Where the founders are now

Michael Marks stepped aside as CEO in spring 2020 to focus full time on his VC firm.⁵ Fritz Wolff stepped down as a board member of Katerra in 2019.⁷

Lessons, as others put them

"unfortunately, the Katerra team was trying to do too much. There was a lack of focus, boiling the ocean vs. addressing a couple of key low-hanging fruit opportunities successfully, then building on that expertise and trust with customers. Over-spending without any returns on their investments. The number one rule of business -- in my mind -- don’t run out of money! They failed but others are succeeding with more deliberate and discreet efforts."Margaret Whelan, founder and CEO of Whelan Advisory²

"I think Katerra started with a decent idea. I think they started with consumer packaged goods people pitching an idea that they could turn construction into a manufacturing and logistics play…without ever having done anything in construction. And then they frantically tried to hire people in construction, and at that point, it was too late."Bassem Hamdy, CEO of construction tech startup Briq²

Sources

1. What does Katerra's demise mean for the contech and ..., constructiondive.com, Oct 13, 20
2. What Happened to Katerra: How It Raised $1.6B and Still Failed, failory.com
3. SoftBank-Backed Katerra to Shut Down — The Information, theinformation.com, Jun 1, 202
4. SIX YEARS AFTER STARTUP KATERRA DIGS TOO DEEP OF A HOLE | PELICE, PELICE, 2021-05-15
5. Katerra – Failure.Museum, failure.museum
6. SoftBank-Backed Construction Technology Startup Katerra Set to Close, Pro Builder, Jun 3rd 20
7. Construction startup Katerra Inc. closes Spokane Valley plant, reportedly shutting down operations worldwide, Spokesman.com, Jun 3, 202
8. SoftBank pours $865 million into Katerra, a start-up making buildings in a factory, CNBC, 2018-01-24
9. Katerra Valuation, Funding & Investors | Multiples, multiples.vc, 6 days ago
10. Construction startup Katerra raises $75M in 1st funding round, constructiondive.com, Mar 29, 20
11. Katerra, a Construction Start-Up, Raises $865 Million, nytimes.com, Jan 24, 20
13. Kroll Restructuring Administration, cases.ra.kroll.com
15. Katerra, Inc. Bankruptcy Plan Administration and Wind-Down, jsheld.com
16. Defunct Katerra sues former CFO for bonus, cfodive.com, Mar 20, 20

How this case file was put together

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