Large construction projects often take a long time, and subcontractors can get caught up in the cash flow, potentially waiting up to 80 days for payment from prime contractors. This not only causes delays, but also means that subcontractors are asked to fund their part of the project. contrafor CEO Anwar Ghauche told TechCrunch.
“Subcontractors are hired for the project and when they finish their first month of work, they submit an invoice and then wait an average of 45 to 60 days – even up to 80 days – for their payment,” he added. “In the meantime, they’re buying equipment and borrowing money to do all this work. They also don’t borrow at a cheap rate because most banks hardly touch them.”
That’s where Constrafor comes in: as a SaaS construction procurement platform with embedded financing, it streamlines information and documentation for general contractors to work with subcontractors, while their early-pay program takes on the risk of subcontractor billing, freeing up cash flow and reliance on traditional businesses become and costly credit options. The general contractor then reimburses Constrafor the invoice.
Both of Ghauche’s parents were in construction, so he grew up hearing stories about the industry. After attending MIT Business School and working at an AI startup in the financial services space, he and Douglas Reed co-founded Constrafor in 2019 and launched the platform in early 2020.
General contractors can sign contracts with their subcontractors and collect relevant paperwork, including insurance certificates, and then collect and pay the invoices through the platform. When there were a number of subcontractors in the database, Constrafor started offering the early pay program. His earnings are based on taking about 2% of the bill value.
Two years later, Constrafor currently has 15,000 companies in its network and both a slightly smaller group of active users and another group using Early Pay.
When it became too cumbersome for the company to buy all the bills, Ghauche and Reed decided to seek some venture capital, raising $106.3 million in debt and equity seed capital. The breakdown is $100 million in loans and $6.3 million from a previous equity round raised in June that was undisclosed, Ghauche said.
CoVenture led the credit facility while FinTech Collective led the equity portion, with participation from Village Global, Clocktower Technology Ventures, Commerce Ventures and a group of individual technology founders from Ramp, Uber and Paxos. The equity goes towards the company’s payroll, while the balance is used to purchase the bills.
For the past 12 months, the company has been doubling its revenue every month for the past few months, and Ghauche expects that growth to continue over the next few months.
As further evidence of rapid growth, he added that Constrafor had less than $100,000 in annual recurring revenue in January, but was raking in $2 million in ARR by April and expected to have $10 million in ARR by the end of the year will exceed. Ghauche wasn’t ready to share the company’s valuation just yet, but said it would have a reasonable valuation when it goes into the next round of funding.
Meanwhile, Ghauche says 70% of dollars in construction still come in check form, presenting a huge opportunity to use technology to improve the email and spreadsheet approach the industry uses today.
The company is also working on a beta program to provide contractors with a virtual bank account via Stripe, which would include credit cards.
“Construction companies spend less than 1.5% of their revenue on technology, compared to others who spend an average of 3.5%,” Ghauche added. “That’s why you see low productivity and a lot of companies in this industry are struggling. They don’t have the margins to buy a lot of software, so they try to develop their own but still can’t afford it. With us we build the software to organize their operations and charge a minimum so they can have technology.”
Constrafor grabs $106M in equity, credit to finance construction subcontractors – TechCrunch Source link Constrafor grabs $106M in equity, credit to finance construction subcontractors – TechCrunch