Large construction projects often take a long time to complete, and subcontractors can get caught up in the flow of money, waiting, in some circumstances, up to 80 days to be paid by general contractors. This not only causes delays, but also means contractors are essentially being asked to fund their part of the project, Constrafor CEO Anwar Ghauche told TechCrunch.
“Subcontractors are hired on the project, and when they complete their first month of work, submit an invoice, then wait an average of 45 to 60 days – or even up to 80 days – to get paid,” he said. -he adds. “In the meantime, they buy equipment and borrow money to be able to do all this work. You also don’t borrow at a cheap rate, as most banks barely touch them. »
That’s where Constrafor comes in: as a construction procurement SaaS platform with integrated financing, it streamlines information and documentation on how general contractors work with subcontractors, while its program Prepayment assumes the risk of the subcontractor’s invoice, freeing up cash flow and reliance on traditional systems. and expensive loan options. The general contractor then reimburses the invoice to Constrafor.
Both of Ghauche’s parents were in construction, so he grew up listening to stories about the industry. After attending MIT business school and working in financial services at an AI startup, he and Douglas Reed co-founded Constrafor in 2019 and launched the platform in early 2020.
Dashboard of Constrafor subcontractors Picture credits: Constrafor
General contractors can sign contracts with their subcontractors and collect relevant documents, including insurance certificates, then collect invoices and pay through the platform. When there were a number of subcontractors in the database, Constrafor then started to offer the Early Pay Program. Its turnover is based on the assumption of approximately 2% of the invoice value.
Two years later, Constrafor currently has 15,000 businesses on its network and both a slightly smaller group of active users and another group using Early Pay.
When it became too difficult for the company to buy all the bills, Ghauche and Reed decided to seek venture capital, raising $106.3 million in seed debt and equity funding. The split is $100 million in credit and $6.3 million from a previous funding round raised in June that was not disclosed, 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 tech founders from Ramp, Uber and Paxos. The equity went to payroll for the business, while the credit will be used to buy the invoices.
Over the past 12 months, the company has doubled its revenue every month for the past few months, and Ghauche expects to continue to see this type of growth over the next two months.
Further proof of rapid growth, he added that in January, Constrafor had less than $100,000 in annual recurring revenue, but in April it was bringing in $2 million in ARR and expected to exceed $10 million in ARR by the end of the year. Ghauche was not yet ready to share the company’s valuation, but said it would have an appropriate valuation in its next round of funding.
Meanwhile, Ghauche says 70% of construction dollars are still circulating in check form, providing a big opportunity to use technology to improve the email-and-spreadsheet approach the industry uses today. today.
The company is also working on a beta program to provide a virtual bank account to entrepreneurs, via Stripe, which would include credit cards.
“Construction companies spend less than 1.5% of their revenue on technology compared to others who spend 3.5% on average,” Ghauche added. “That’s why you see the low productivity and a lot of companies in this industry struggling. They don’t have the margins to buy a lot of software, so they try to make their own, but they still can’t afford it. With us, we build the software to organize their operations and charge a minimum so that they can have the technology.
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