BUILDCO: Utilizing Strategic Framework To Scale
BUILDCO Raises Series A2 To Attract, Validate, And Fund Their Business
BUILDCO is a company presenting the market with an innovative and affordable housing solution for modern urban cities. With Bullet Point Network (BPN), BUILDCO leverages strategic insight to scale its business and gain investors.
Mass migration from rural to urban areas will drive the need to build homes for more than a billion people across the globe by 2030. In India alone, 500 million people will require housing in urban centers by 2030, which suggests a 35 million+ unit housing shortfall based on conventional design, financing, and construction schedules. In order to meet the world’s needs for high-quality and affordable homes, the residential construction industry must be fundamentally transformed.
Our family office client, XYZ Capital (anonymized here for client confidentiality), has been monitoring this looming shortfall and was interested in capitalizing on an opportunity that will transform residential construction. Specifically, XYZ Capital was looking to back an entrepreneur with an innovative and affordable housing solution for urban cities.
XYZ Capital leverages a strong network to source deals and find companies with transformational upside, execution capability, and trustworthy management. Only after a company has met these first three criteria is it worthy of deeper diligence for potential investment consideration. Once a prospect reaches the third stage of their diligence process, XYZ Capital engages BPN to provide the research and analysis on investment scenarios and potentially support the portfolio company long term.
BUILDCO (name anonymized for client confidentiality) was the latest venture of a 25-year veteran of the design and construction industry. BUILDCO’s founder had a single focus: Find the perfect method for modular construction of multi-family residential units that can be executed at scale. When XYZ Capital met them, BUILDCO had already completed a Series A financing round, executed a well-reviewed prototype, and initiated the patent process for a transformational building system based on advanced design and manufacturing techniques. BUILDCO had the potential to transform the construction industry worldwide, by enabling high-quality multi-family units to be built 70% faster, on a far larger scale, using patented materials and methods.
BUILDCO clearly had a winning solution to a pervasive problem: It had the ground-breaking technology and extensive construction industry expertise. However, BUILDCO was behind schedule on some of its key milestones and had not raised enough capital from outside investors to support its ambitious self-build plan, or its technology licensing strategy with major developers. In order to secure XYZ Capital as an investor, BUILDCO needed a trusted third party to deliver stakeholders with a more complete understanding of key business drivers, the range of resulting scenarios, risks, probable outcomes, fundamental valuation, and pricing models.
Key Challenges for bpn
Provide credible valuation leadership for both the Series A2 and Series B financing rounds, supported by specific milestones, a capital plan, and well supported valuation analysis to quantify credible scenarios for cash burn and long-term upside.
Increase alignment between founders, management, board, and outside investors around milestones needed to validate the company.
Demonstrate the building technology in order to complete a subsequent financing round within 12 months.
Build and maintain a strategic model around key drivers, support each assumption with evidence, develop scenarios for key drivers, and model fundamental cash flows necessary to support long-term valuation analysis. In addition, monitor operating results and support enhanced decision-making over time.
Create interactive reporting to enable management and investors to visualize the valuation framework for monitoring key drivers, track milestones, and support future capital raising, all supported by evidence and powerful scenario models.
In collaboration with both XYZ Capital and the BUILDCO team, BPN honed in on the key business drivers. Utilizing relevant facts from both soft insights and hard data sets, the BPN team validated the BUILDCO sustainable advantage by supporting key drivers, including:
Worldwide demand and an unmet need for low-income and middle-income housing units.
Annual housing start projections in the developing world, particularly in India.
Realistic licensing and component revenue models for BUILDCO.
Preliminary competitive landscape analysis, penetration rate scenarios, and peak market share.
Validation of time reduction in construction for BUILDCO units, operating expenses, and capex.
Benchmarking of unit pricing, gross margins, and operating models for key component producers.
The team modeled the 100 possible scenarios of the key drivers and assigned probability weighted judgments to each, informed by a mix of hard data and qualitative expertise provided by industry experts:
BaBased on the fundamental drivers identified, key input from BUILDCO management, value-added research, and thorough analysis, BPN created a strategic model. With this model, which integrated financial statements across multiple scenarios, BPN could:
Identify the total addressable market by region and BUILDOCO market share.
Understand revenue per unit, licensing economics, and component gross margins, with scale.
Deliver a realistic cost modeling, including capex, marketing/distribution deals, and SG&A.
Forecast on a quarterly basis for five years, and annually, to 2050.
Build 100 cases, each driven by fundamental logic.
Create multiple valuation methods: discounted-cash-flow, multiples of revenue, EBITDA, and EBITDA (excluding growth).
Project different valuation horizons, with continual updating.
Jointly with XYZ Capital, BPN then reviewed BUILDCO company presentations and operating budgets, and created preliminary cash-burn rate analysis, and long-term upside scenarios, under a range of plausible and possible outcomes. A significant part of this analysis was capital requirements and dilution scenarios for both XYZ Capital and BUILDCO founders and management using different operating models.
The team then focused in on building a credible validation story of the core value proposition:
A fundamentally different way to design and build multi-family residential buildings.
Potentially unprecedented performance outcomes including very high scalability, 70+% faster construction, higher quality, and lower costs.
Building developers deliver units on-time and on-budget, and tenants live in high quality and durable housing; developers who license BUILDCO technology grow faster and improve their own profitability.
Near-term confirmation that BUILDCO’s technology and prototype units capture enough interest from established building developers to secure licensing contracts at attractive terms.
In addition, BPN also researched and quantified the market opportunity, which forecasted an unmet demand for 20-25 million housing units in India through 2022.
BPN’s interactive reporting includes a full financial model, which delivered the following key components: key business drivers, cash flow and burn scenario planning, long-term equity value creation, and financial and operational KPIs. In collaboration with BUILDCO management, BPN agreed on specific milestones over various horizons:
Guided by the BPN strategic model, XYZ Capital partnered with the lead investor in the Series A round. BPN provided ten logins to the interactive presentations and met with prospective investors approved by BUILDCO to help close its financial round.
XYZ Capital and BPN shared its interactive reporting and the BPN Briefing, which zeroed in on the main drivers and aligned BUILDCO with its new investors, with key BUILDCO stakeholders.
All parties use a common language and framework for tracking milestones, discussing decisions, and considering future valuation.
Under an engagement contract with BUILDCO, BPN maintains an updated strategic model, continues tracking evidence, updates stakeholders, monitors results, and provides scenario modeling. Today, the BPN team drives decision-making and effectively aligns board, management, and investors.
Since the Series A closing, BPN is monitoring every milestone and adding updated evidence to the strategic model. The evidence is produced and provided by company stakeholders, selected industry experts, and the BPN team.
The goal of the ongoing BPN engagement is to help the CEO and the BUILDCO board guide the company while positioning it for a successful Series B raise within 12 months. Subsequently, this will also set the stage for more significant growth in the years ahead.
When XYZ Capital met the BUILDCO founders, they saw a uniquely qualified, coachable, and highly confident team of entrepreneurs. They also saw a large and growing market primed for a changemaker. With BPN, XYZ Capital and BUILDCO were able to arrive at a mutually beneficial investment strategy built on strong evidence.
Unlike some XYZ Capital investments, BUILDCO required a lot of help from BPN. From structuring their business model and improving their governance to financial oversight and raising the capital necessary to expand their margins, BPN was able to provide the support that allowed BUILDCO to focus on their main competitive advantage: their technology.