Wednesday, September 26, 2018

Venture Capitalists are Stalking the Modular and Prefab Industries

What happens when you are one of the biggest High-Tech companies in the world and your employees can’t afford to live near your offices? It would be embarrassing if they had to live in a tent under a bridge or worse yet in one of those California Tuff Sheds.

Fear not workers. Amazon, Yahoo and Google are buying land near their huge campuses and investing in modular home factories to build affordable housing for you.

Venture capital is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth and it’s not unusual to read about millions and millions of dollars invested in West Coast modular and panelized factories.

If it seems that the West Coast factories get most of the venture capitalist's money, you’re right.

The West Coast is lacking affordable housing, homeless shelters, condos and even tiny houses. There is also a huge stockpile of money earned from all those high tech people who are not only searching for a place to invest their money but also to “make a difference” in the world.

These venture capital people have already endowed Katerra, Factory OS, Plant Prefab, Fullstack Modular, Blokable, Kasita with huge influxes of money, almost $2 billion so far, but they are also beginning to invest in panelized wall, truss and floor operations like Entekra all delivering product to the West Coast.

Blu Homes, one of the companies that first attracted venture capitalists to the prefab industry received over $100,000,000 and went on a marketing spree like had never been seen in our industry before holding Wine and Cheese Open Houses across the US for their unique ‘folding’ house design. They consolidated their operation into a factory in Mare Island in California and after a short run of building their own homes, gave up the factory and decided they only wanted to offer their $500 sq ft homes in CA’s Wine Country where apparently even Daycare can reach $1,000 a week.

Now factory OS has taken over their former factory and along with Google’s help and their order for a huge number of modular apartments is starting to ramp up to build thousands of modules with orders flowing in.

As long as the West Coast states, CA, OR and WA have needs for hundreds of thousands of affordable housing units, factories serving those states will continue to see venture capitalists (VC) fighting to give new factories more and more money.

But what about the rest of the country? Outside of Colorado and Utah in the West, their doesn’t seem to be enough business to make the VCs in any rush to invest. The South and Southwest haven’t seen VC lining up to give away money for…...well, almost never!

The Midwest has some big manufactured home players including Clayton (funded by Buffett’s Berkshire Hathaway), Champion that is in the process of going public, Commodore and Cavco. All these mostly self fund.

That brings us to the East Coast and the New England states. These states have the largest concentration of modular factories in the US. Pennsylvania alone has over a dozen custom modular home factories. But the VCs for the most part are ignoring these regions.

An example of an East Coast Custom Modular Home

Seems that investing in what many VCs consider “old technology” won’t show the return they need. Most of the East Coast modular factories build customer designed modular homes and hotels for Marriott and Hilton. They only new factory of any worthwhile size to open there is BluePrint Robotics in Baltimore that builds unique panelized components. Word is their European investors are satisfied with investing in BluePrint but it is not setting any growth records.

VCs look at these two regions as a place where high tech should be welcomed with open arms but for some reason they just don’t see the crushing need here like they see on the West Coast.

That’s a shame as the talent and experience is on the East Coast and when the VCs actually sit down to look at what could be done there, I predict the money faucets will open and the VCs will begin realizing the East Coast with cities like Boston, New York City, Philly, Baltimore and DC has an even bigger demand for new factories and technology than the West Coast.

Attention Venture Capitalists: Why wait for Toyota, IKEA and Sekisui House to build their new factories in the East?

1 comment:

Anonymous said...

Venture Capitalists need to understand they have a unique opportunity to help change and improve an entire industry but the epicenter is not just located on the West Coast.