Following a final $200 million investment from SoftBank, Katerra is closing after years of financial mismanagement and rising construction costs.
After six years and more than $2 billion in funding, multifamily construction company Katerra is shutting down its U.S. operations. First reported by The Information on Tuesday, the SoftBank-backed company long struggled with financial management, which was allegedly exacerbated by rising construction and labor costs over the past year.
“Following a thorough review of strategic business alternatives, Katerra has determined that it must wind down the majority of its U.S. business operations, effective immediately,” company leaders told employees in an email obtained by The Information. “Unfortunately, most of our U.S. employees will no longer be working for Katerra in the near future.”
At its height, Menlo Park-based Katerra had more than 8,000 employees globally, with operations throughout U.S., Canada, India, and the Middle East. The startup built commercial and multifamily properties, finished structural systems (e.g. truss assemblies, wall panels, plumbing, electrical), and manufactured cross-laminated timber and windows.
Katerra placed itself as the leader of tech-enabled construction and manufacturing, which quickly drew attention and massive funding from the SoftBank Vision Fund, Khosla Ventures, DFJ Growth, Greenoaks Capital, and Celesta Capital. However, the company began facing financial woes in 2019 as it failed to retain c-suite leaders and meet project deadlines.
“By 2019, Katerra was showing signs of strain, with leadership turnover and scuttled projects,” a previous Inman article read. “The Wall Street Journal further reported that the firm has experienced cost overruns and took on a high debt load as it sought to expand quickly.”
Last year, the company attempted to stay afloat by laying off nearly three-fourths of its employees and beginning the process of filing for a Chapter 11 bankruptcy. Matters worsened when the U.S. Securities and Exchange Commission began investigating Katerra’s accounting practices, The Information said.
However, SoftBank attempted a Hail Mary in December 2020. The startup received another $200 million in funding, which CEO Paal Kibsgaard said would position Katerra “to accelerate its path to profitability and continue its pursuit to transform the construction industry through innovation of process and technology.”
“We believe that this strategic and operational realignment, supported by SoftBank, is in the best interest of all stakeholders and will provide Katerra with the financial flexibility and resources needed to invest in areas that have the most promising growth trajectory,” Kibsgaard added.
But, skyrocketing lumber and labor costs and the lingering impact of the coronavirus pandemic proved too much for the startup to surmount. “The impact has been severe – with cash reserves reduced to the point where the current business model can no longer be sustained,” Katerra leaders explained.
Katerra’s U.S. team won’t receive severance packages or payment for unused paid time off, a former employee told The Information. The startup has declined requests for comment and given no updates about the status of its overseas operations.
In the months leading up to Katerra’s ultimate demise, SoftBank CEO Masayoshi Son said the startup was one of his greatest failures alongside the infamous WeWork. “There were many investment failures, such as WeWork, Greensill and Katerra. But what I regret more is the missed opportunities to invest,” Son told Nikkei Asia in March.