Veev Falters: Lessons Learned For Homebuilding Innovation
Left to right: Amit Haller, Co-founder and CEO of Veev, Ami Avrahami, Co-founder and CPO of Veev, Dafna Akiva, Co-founder and CRO of Veev
Veev is on the ropes. Is a five-year run of homebuilding innovation as well?
Here's the thing. Solving American residential construction's labor and talent constraint, affordability crisis, and building quality, resiliency, and sustainability challenges are five to 10-year projects. They don't square up with venture capital investment cycles. They won't obey Silicon Valley start-up rules of engagement for legacy industry disruption. Patience, perseverance, and discovery are non-negotiables that need to ride along with the applied brilliance of innovators.
Each structural challenge meshes business interests and societal needs and imbalances. Solutions, such as they are, must boot-strap themselves by the same set of success or failure criteria as every other private enterprise initiative, or likely suffer the same fate as Veev and Entekra before it, and Katerra before that.
Still, the Catch-22 of needing to discover and execute brand new fabrication systems and bill-of-materials sourcing, scale up and solve for local geographical distribution, climate, and code, and run profitably to meet owner-investors' return expectations – all the while working as a variable cost on homebuilder and developer customers' balance sheets proves again and again to be a business show-stopper.
Experienced homebuilder strategists may feel saddened about Veev and its team; however, they're not surprised by the news of the venture's faltering.
We should not ask, was it flawed in its execution or its model? And we should not view this as a case of Silicon Valley opportunists running amok with more than $600 million in venture and private capital funding, believing they'd get a free pass or extra consideration as they tried to stand up a game-changing business.
Two questions for the residential construction and development business leadership scream: What capital, time, and infrastructure investment commitment will it take to pivot housing's capability into its common-sense future of modern manufacturing, automation, and industrialization?
Secondly, if residential real estate development and construction's leading enterprises recoil from putting modern manufacturing capability onto their balance sheets as fixed costs, will they likewise choose not to commit to and invest in such capabilities as necessary research and development in a quantum stride forward from a full-stack of trade and materials suppliers?
Yes, such suppliers amount to being variable costs builders and developers can accordion up and down at will during housing's boom and bust cycles, but – given the rate of frontline labor shrinkage, higher baseline costs of most building materials (except lumber), and persistent high costs on land and lending – the business' opportunity cost may be greater if homebuilders fail to foot at least a major part of the bill to evolve into modern manufacturing.
In Veev, a promising, extremely well-funded, richly pedigreed, and nobly-purposed homebuilding technology enterprise finds itself angstroms from an extinction event.
Again.
Calcalist reported on Sunday that the company — which raised $600 million in total, $400 million of which was secured in March of 2022 — has to shut down after an “abrupt cancellation of a capital-raising initiative.” – TechCrunch
Veev takes its place in a wrenching parade of meteoric mission-purpose-and-strategy initiatives bent on transforming housing affordability's fierce calculus, but that failed to pass a less forgiving sniff test as sustainable, money-making businesses within a tolerable time-frame.
A LinkedIn post this week from Scott Finfer, senior VP of market strategy, asset management, and development at KB Home, captures the sharply conflicted view many stick-builder enterprises take of Veev's existential crisis.
Very sad news just in on Veev
Looks like this might be the end for a wonderful concept. Veev had all the ingredients to disrupt the home building business. Fast build. Innovative product. Better quality.
So why are they failing? In my view they were trying to boil the ocean. Veev wanted to change how homes were built. And they had a chance to do so, but they made a fatal strategic flaw. They viewed themselves as a supplier to the industry. As opposed to being a competitor in the industry.
Or to say it another way Veev could have been a force in production home building by buying land and developing large scale communities to then build houses. The choose to be a manufacturer instead of a builder.
Why it’s uncertain what happens from here, without a change in focus it’s unlikely they will get out of this mess.
Great people and a noble idea.
Good luck Team Veev. I’m still pulling for you!
Solving for velocity, labor productivity, materials waste, first-time construction quality, and – critically – attainable access among young working adult households in America's cities and towns, gets exactly nobody Brownie Points for good intentions regarding capital investors' and lenders' return expectations.
Bloomfield Homes chairman Don Dykstra, participating in the LinkedIn conversation with KB Home's Finfer, speaks to a simple reality that any venture in any era faces when it comes transforming how our new homes come to be:
Agree the modular builders should build and sell homes themselves to refine and prove up concepts utilizing a lot less seed capital. Builders can’t afford to take a major chance on unproven and unprofitable suppliers."
And Veev will not be the last of building-as-a-service start-ups – modular, prefabrication, off-site panelization and framing, 3D enclosure printing, and other automated, robotic, and semi-automated building systems – to come face-to-face with a brutal winnowing period after a decade-long era of capital investment largesse ended in early 2023.
Nelson Del Rio, co-CEO of modular residential development innovator Blokable told The Builder's Daily in March, shortly after the collapse of Silicon Valley Bank:
Banking problems absolutely have an impact on modular now and down the road. Generally, developers have gotten used to low-cost construction and takeout financing. Higher cost financing will make modular more attractive as an input, when done properly, as capitalized interest costs are reduced by a faster build process. However, the capitalized interest savings generated are more than offset by the total negative impact interest rates have on real estate underwriting. Projects won’t pencil and every input will be squeezed on pricing. Modular entities will be forced to tighten margins as they try to win bids and keep deals alive. As real estate development tightens, alternative modular providers who are suffering from deals being canceled or delayed as well as providers of alternative building techniques will push profit margins down or maybe even drive a provider into negative territory to stay alive."
A great line from the movie War Games comes to mind when thinking about traditional modular construction and market dynamics, 'The only winning move is not to play.'”
In the offing, a higher-for-longer interest rate and borrowing costs regime weighs ever more heavily on at least a couple of dozen other capital-intensive homebuilding technology ventures.
Veev's value proposition and strategic team earned both investment and operational support from Lennar's LenX Ventures real estate, construction, and property technology innovation incubator.
Exactly 24 months ago, we quoted a LenX press statement:
As Lennar explores exciting new technologies and approaches to home construction, Veev's integrated solution allows homebuyers to enjoy state-of-the-art features and cutting-edge design," said Eric Feder, President of LENX. "Lennar and Veev share a passion for innovation, and we are excited to collaborate on this first community and in the years to come as we embrace sustainable, high-quality and effective alternatives to traditional construction."
Notably, Stuart Miller, Lennar executive chairman and co-CEO, spoke with Walker & Dunlap chairman and CEO Willie Walker as part of a podcast, offering Miller's view on its investments in Veev, ICON, and other building and real estate technologies.
Here are a few of Miller's comments about Lennar's investments in innovation:
Why Innovate?
Stuart Miller, Lennar
If you look more recently at the technology world, the evolution of the way technology has altered the landscape of every business. And the businesses that don't adapt, that don't find their way to a modernized approach, whatever that approach might be. They find themselves at a disadvantage, and sometimes disintermediated and left behind and we concluded years ago, that we were not going to be the ones left behind. We were going to be at the tip of the spear, and it might cost us money and it might eat into profitability. But we were going to be at the cutting edge of the evolution of the way that our business would develop. We would be durable, and we would be long-lasting because we incorporated modern technologies in a way that we weren't. We started years ago investing in technology companies that were evolving. While we were building some of our technology platforms. We felt that we could learn from others while we evolved into ourselves. And that continues to be a core element of the way that we grow our business."
Lennar Structure For Innovation Investment
Stuart Miller
People confuse our initiative as being somewhat of a venture capitalist. And in fact, it was always secondary, that we would maybe make money on the investments we were making. We knew that we would make bigger money on the inclusions, and the alterations to our core business. That would drive some of the cost parts of our business down. And you can look at various pieces of our business. We could walk through those where we've seen discernible reductions in cost structures because of the technologies that we've incorporated as part of our endeavors in LenX."
Investments In Modern Manufacturing
Stuart Miller
I don't care what endeavor someone is looking to innovate or start up. It is hard. It's really hard to do. I want to embrace those who are bold enough to get out there and try, and sometimes fail. They do provide a stepping stone for the learning process. It’s just hard, and if you're not just laser-focused on getting one thing done, it’s very hard to find your way to sustainable success. Read the book Elon Musk by Walter Isaacson. Why? Because you get that drumbeat of what it takes to be gritty and determined at the end to stay focused on what you're trying to do. Now, Elon has some broader talents and abilities. It's hard to shoot off a rocket ship and build an electric car company at the same time. But these businesses are hard to build.
"So as we migrate our conversation to 3D printing or panelized building, initiatives that we're heavily invested in and that we're working with, we do those primarily to get in at the bottom floor to begin the learning process to see what we can learn from the evolution of those businesses and see where the stumbling points are along the way. Hopefully, we can be constructive in helping our industry elevate itself to a point where when labor is stressed, we can overcome that, and when prices or costs are too high, we can find ways to bring them down. And if we don't start working in those directions, we're not going to be able to affordably provide the housing that this country needs as you know, there's a great supply deficit right now. We're running hard to fix and fill the gap. But the fact is, we can't keep up as an industry with the growing supply shortage that exists in the country. We've got to find some new mechanisms."
The question pressing harder on pioneers of modular construction, modern manufacturing, industrialization, etc. is whether such companies – offering a full-stack or super-sub capability in a factory setting – can both sustainably profit and, ultimately, impact what would-be renters and buyers would pay for access to these new residences.
One view – that of Blokable founders Aaron Holm and Nelson Del Rio – is that capturing construction efficiencies alone, while necessary, can neither support a long-term financial profit model nor lead to lower rents or attainable home prices.
The only answer is to disrupt development," says Blokable Co-CEO Aaron Holm. "If we own the technology and manufacturing process and can substantially reduce the cost to develop valuable, appreciating housing assets then it will be the developers who will be commodified. Disruption always threatens, not strengthens the incumbents who invariably have underinvested in innovation and realize too late that there’s a core threat to their model."