Katerra: The promise of prefab
Katerra’s premise was not entirely without merit. Modular construction — interchangeably termed “prefabrication” or “offsite construction” — has deep historical roots. The method of producing standardised components for on-site assembly dates back to ancient Roman structures. In recent history, architect Moshe Safdie’s Habitat 67 at the 1967 World Expo — assembled from 354 identical prefabricated concrete forms and envisioned as a more affordable solution for modern urban high-rises — marks one of the most famous experimental modular building projects. Tellingly, though, Safdie’s vision never progressed beyond the World Expo prototype. An ArchDaily retrospective noted that while Safdie’s prefab approach was meant to lower production costs, the lack of scale ended up driving them significantly higher than expected. We will revisit the flawed economic reality of prefab construction in Katerra Industries’ story shortly. But first, some context
Founded in 2015 by Michael Marks, Fritz Wolff and Jim Davidson, Katerra began as a materials and hardware supplier, aiming to streamline procurement by bulk-buying fixtures and selling them directly to general contractors, thereby cutting out the “middle many”. When that model failed to gain traction, with general contractors reluctant to sever long-standing relationships with their trusted network of subcontractors, Katerra pivoted towards full vertical integration, seeking to control every aspect of the construction process. It branded itself as architect, engineer, subcontractor and general contractor all in one, aiming to use scale and advanced manufacturing to deliver housing projects that were faster and cheaper than conventional construction.
This ambitious vision was a natural outgrowth of the founding team’s backgrounds. Notably, Marks had previously led electronics manufacturing services firm Flextronics, growing its revenue to nearly US$30 billion through acquisitions and vertical integration over his 13-year tenure. Meanwhile, Wolff was the executive chairman of The Wolff Company, a real estate private equity firm; and Davidson, an active Silicon Valley angel investor and founding partner of Silver Lake, a private equity firm known for high-risk, high-reward leveraged buyouts of mature tech companies. From the start, Katerra — helmed by a team of tech and finance-oriented outsiders — was envisioned as an industry disruptor: a bold attempt to apply the electronics endto-end manufacturing model to reinvent the construction sector.
See also: Sustained economic success comes only from harnessing local private enterprises
A fundamental mismatch
While numerous post-mortem analyses following Katerra’s 2021 bankruptcy highlight complex strategic and operational failures, the most critical issue was arguably the fundamental mismatch between the company’s business vision and the realities of the construction industry. Katerra approached construction with an electronics manufacturing mindset. Construction, however, resists such easy abstraction. In reality, builders must navigate a complex patchwork of zoning laws and local codes, shaped by site-specific climatic, topographical and environmental constraints.
Operating in California alone — where the company was headquartered — meant contending with some of the strictest regulations in the US. The California Building Code (CBC), for example, extends the widely adopted International Building Code (IBC) to address the state’s heightened seismic risk. Furthermore, despite zoning reforms like SB 35 (2017) and SB 9 (2021) encouraging denser developments, over 95% of Californian residential land remains zoned for single-family housing, according to UC Berkeley’s Othering and Belonging Institute 2024 report. This creates a fundamental mismatch: Prefab construction relies on scale and standardisation to achieve cost savings — conditions that are difficult to meet in a landscape defined by stringent regulations, low-density zoning and entrenched NIMBY (not in my backyard) opposition.
See also: Trump wins the trade war — and the advantage of future US relative productivity gains
California (notorious for topping ranks as the worst state for homebuilding) represents perhaps the most dysfunctional face of US construction, but roadblocks to modular building extend nationwide. A 2023 McKinsey report noted that modular construction accounts for under 4% of US housing, despite the theoretical potential to cut timelines and reduce costs by at least 20%. Simple economics explains this puzzle: To break even on upfront factory investments, builders typically need to deliver 3,000 to 5,000 housing units within a year, within a two-hour shipping radius of the factory — an unlikely proposition as explained above.
Separately, the industry fragmentation that Katerra originally set out to “solve” may, in fact — to borrow from tech jargon — be a feature, not a bug. As the McKinsey report cited earlier concedes, construction is inherently “bumpy and variable”. Despite its inefficiencies, fragmentation can offer a form of resilience, allowing the industry to scale production more flexibly in response to shifting demand. In this sense, it acts as a buffer against the sector’s unpredictability and cyclicality. By contrast, modular construction introduces greater upfront capital requirements, adding a new layer of risk to an already capital-intensive industry.
Operational missteps and conflicts of interest
In Katerra’s case, some inefficiencies were also undeniably self-inflicted — stemming from operational missteps and a fundamental lack of industry expertise among its leadership. The company’s sprawling product catalogue offered everything from entire buildings to individual timber components, fixtures and fittings, construction software, and even cleaning services. This was reminiscent of the electronics manufacturing strategy, where companies like Foxconn control the entire value chain — from product development and component manufacturing to final assembly — to achieve both economies of scale and wide technological moats.
For Katerra, this breadth instead signalled a lack of strategic focus. For instance, at one point, the company overcommitted to a single product line — cross-laminated timber (CLT) — building enough capacity to produce 10% of global supply. While an innovative building product that had first set Katerra apart from its peers, CLT remained a niche, high-end material in the US market. Perhaps the clearest evidence of Katerra’s strategic incoherence lies in its project portfolio: Despite an original mission to streamline multi-family residential construction, completed projects ranged from a luxury residential tower in downtown Seattle to high-rise student housing in Washington, single-family homes in Saudi Arabia, and a Ronald McDonald House in Idaho.
Failures in corporate governance further compounded the chaos. Overlapping financial interests — most notably, through Paxion Capital (a private equity firm) and Kandle (a closed-ended investment fund), both co-founded by the Marks-Wolff-Davidson team — blurred accountability. These entities invested in various Katerra projects, fostering a murky environment of potentially misaligned incentives and potential conflicts of interest. Following Katerra’s collapse, a lawsuit was brought against the co-founders for alleged “self-dealing and self-interested transactions”, including rubber-stamping acquisitions in which they held personal stakes through these affiliated investment vehicles.
WeWork: Venture myth-making
For more stories about where money flows, click here for Capital Section
For those attuned to financial headlines, Katerra’s dramatic downfall likely recalls another high-profile collapse: WeWork. Founded in 2010, the company set out to revolutionise commercial real estate with a “space-as-a-service” model — mirroring the software industry’s “software-as-a-service” approach that is driven by recurring revenues. In practice, the business boiled down to leasing office space long-term and subletting it short-term. Once valued at US$47 billion and hailed as one of the world’s most valuable start-ups, WeWork has since become a textbook example of the worst excesses of start-up culture and venture-led funding (see Table 2). Interested readers may refer to our previous articles for a comprehensive analysis of the company (scan QR codes).
While Katerra may not have promised the grandiose ambitions of “elevat[ing] the world’s consciousness”, as WeWork famously did in its initial public offering (IPO) filings, the parallels between the two are hard to ignore. Beyond the shared themes of financial mismanagement and poor corporate governance — WeWork co-founder Adam Neumann reportedly made millions by renting properties back to his own company — both were once darlings of SVF. Both leaned heavily into tech-adjacent branding with a “grow at all costs, figure out the metrics later” ethos that aligned neatly with SVF’s appetite for disruption. The pertinent question here is perhaps not why the two companies shared so many traits, but rather what these similarities suggest about how the market defines “innovation”.
In his recent book Size: How it Explains the World, cross-disciplinary thinker Vaclav Smil writes about the corporate world’s obsession with scale: “large, larger and preferably the largest have become the most desirable adjectives to describe trajectories to success”. In the high-octane private capital landscape particularly, great returns aren’t good enough — they need to be extraordinary. Accordingly, venture capital (VC) often offers front-row seats to the spectacular rise — and fall — of companies that overreach in pursuit of larger total addressable markets.
Commenting on WeWork’s failed 2019 IPO in the bluntly titled write-up, “Why WeWork went wrong”, The Guardian’s Matthew Zeitlin captures the absurdity of this mindset with sardonic clarity: “If you could somehow build a company that included micro-apartments, software and schools, then, sure, why not? Maybe it really would be worth $100 billion someday.”
Zeitlin’s commentary, intended as bruising criticism of WeWork’s overreach, could just as easily have served as an early warning for Katerra. In that same year, barely two years after achieving unicorn status, Katerra reached a US$4 billion valuation and was midway through a frenetic acquisition spree (see Table 3), chasing the same inflated growth narrative. Viewed through this lens, some of Katerra’s more bewildering decisions begin to make sense. As mentioned above, its “boil the ocean” mergers and acquisitions (M&A) strategy — acquiring nine companies in two years, including two from India and one from Vancouver — created obvious coordination nightmares. Yet, burdened by Silicon Valley’s hypergrowth expectations and a rapid influx of capital, Katerra’s alarming pace of expansion was likely driven by pressure to deploy funds quickly, even when it defied operational logic.
To be clear, this critique is certainly not meant to dismiss the crucial role of private capital in driving innovation. Much of America’s long-standing tech dominance stems from the existence of deep-pocketed VC firms willing to place outsized bets on unproven ideas. But as we have seen, even smart money is not immune to slick narratives. On some level, it is telling that many of Silicon Valley’s most public failures have since been adapted into glossy dramatisations — WeWork, for instance, as Apple TV+’s WeCrashed. These stories offer more than just the satisfying arc of a 21st-century morality play and speak to a deeper cultural anxiety: In a world obsessed with innovation, how do we separate real progress from illusion?
Why good ideas sometimes fail
To ask why good ideas don’t always make good businesses is to confront the uncomfortable truth that execution often matters more than inspiration or narrative. Katerra was not a bad idea in itself. Applying vertical integration and technology to streamline the fragmented construction sector mirrors proven strategies from aerospace and electronics manufacturing. Likewise, WeWork addressed a real need in an era of rising freelance and hybrid work. But its business model left it structurally vulnerable to economic downturns — a weakness that the collapse in demand during the pandemic swiftly exposed. The point is, translating theory into practice requires more than importing Silicon Valley’s “move fast and break things” mantra. Ideas may strike like lightning, but execution — especially in complex, capital-intensive industries — takes time. It demands industry know-how, operational discipline, and respect for the physical and regulatory complexities of these established sectors.
Why good ideas sometimes fail To ask why good ideas don’t always make good businesses is to confront the uncomfortable truth that execution often matters more than inspiration or narrative. Katerra was not a bad idea in itself. Applying vertical integration and technology to streamline the fragmented construction sector mirrors proven strategies from aerospace and electronics manufacturing. Likewise, WeWork addressed a real need in an era of rising freelance and hybrid work. But its business model left it structurally vulnerable to economic downturns — a weakness that the collapse in demand during the pandemic swiftly exposed. The point is, translating theory into practice requires more than importing Silicon Valley’s “move fast and break things” mantra. Ideas may strike like lightning, but execution — especially in complex, capital-intensive industries — takes time. It demands industry know-how, operational discipline, and respect for the physical and regulatory complexities of these established sectors.
For some of the key figures in this cautionary tale, the story continues to unfold. Since Katerra’s collapse, Michael Marks has continued to pursue modular construction dreams through a new venture, ONX Homes. This time, the company not only designs homes and fabricates components in its own factories but also acts as the property developer.
As for WeWork, since emerging from Chapter 11 bankruptcy in June last year — having secured favourable future lease terms and a US$4 billion debt reduction — the company has posted its first sustained period of earnings before interest, taxes, depreciation and amortisation (Ebitda) profitability over two consecutive quarters in 2025. Still, cash flow remains in the red. As for Neumann, after a failed bid to buy back WeWork, he has since re-emerged with a new coworking venture, Workflow.
Katerra and WeWork are not the first, and certainly will not be the last, high-profile failures. Audacity and hope are, after all, the foudation and driving force behind the success of capitalism. There will be no shortage of money, including private equity and VC, chasing the next great hype and multi-bagger return investment. The key is to discern the difference between simply good ideas and good ideas that are followed up with good business models.
The Malaysian Portfolio fell 0.3% for the week ended June 25, with all three stocks trading lower. Insas Bhd – Warrants C was down by another 16.7% while United Plantations and Kim Loong Resources fell 1.1% and 0.9% respectively. Last week’s decline pared total portfolio returns to 183.3% since inception. Nevertheless, this portfolio is still outperforming the benchmark FBM KLCI, which is down 16.9% over the same period, by a long, long way.
On the other hand, the global Absolute Returns Portfolio was up 1.2% for the week, lifting total returns since inception to 26.8%. The top three gainers were Goldman Sachs (+5.5%), JPMorgan Chase (+3.7%) and Alibaba Group Holding (+2.9%). Two stocks ended in the red, namely SPDR Gold (-1.0%) and Trip.com (-0.9%).
Tong’s AI Portfolio also performed well last week, gaining 1.5%, bolstered by gains from RoboSense Technology (+5.5%), Alibaba (+2.9%) and Twilio (+2.7%). The sole losing stock in our portfolio was Workday (-1.4%). Total portfolio returns since inception now stand at -1.2%.
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor's particular financial situation, investment objectives, investment horizon, risk profile and/ or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
