More construction projects are starting, but payments to contractors and their subcontractors continue to bottleneck the normal course of completing a project.
“Banks are becoming more careful with their own financing of development projects, which means they will also slow down payments from you”, explains Anwar Ghauche, CEO of constrafor. "What this means is that payment terms to subcontractors are being extended instead of being reduced, it's just getting more difficult for subcontractors because they typically have no recourse to go to their banks and grow their line of credit." .
Ghauche and Douglas Reed launched Constrafor, a SaaS construction contracting platform, to provide integrated financing and software for general contractors to manage the workflow of their subcontractors. Its Early Payment Program assumes the risk of the subcontractor bill, freeing up cash flow and reliance on expensive, traditional borrowing options. The general contractor then reimburses the invoice to Constrafor.
The company raised $106,3 million in equity and debt in 2022, and since then, Constrafor has grown from 15.000 clients to 23.000. Ghauche admits that the company "had a revenue hiccup" during this time, but that it had nothing to do with the credit market or the network. The company has since tweaked its loan origination and is now growing 25% month-on-month this year "in sustainable growth."
Constrafor has also jumped on the AI trend by launching some initiatives with built-in generative AI related to automating manual reviews, for example insurance. It also partnered with Stripe to offer a banking product and now has over 80 businesses banking with them.
Now Constrafor is back with another $7,5 million cash injection via a SAFE note, led by Motive Partners, which closed this month. In the round, new investor Fifth Wall joined existing investors including the FinTech Collective, Clocktower Technology Ventures, Commerce Ventures, FJ Labs and NotreVis. This gives the company $14 million in equity and $100 million in debt raised since it was founded in 2019.
When asked why Constrafor went after a SAFE note against a price round, Ghauche said he didn't think the market "was big today in terms of prices."
"We've seen that deterioration in multiples for fintech companies," Ghauche added. “We found this to be a much better way for us to continue to grow, hence our milestones on the revenue side for the Serie ASo we're aiming to cross $5 million ARR before we actually go for a Series A. If we can be at $10 million ARR, that's better."
In addition, the investment includes future access to a line of credit. That additional capital potential provides Constrafor with "scalable credit and capital for our business," Ghauche said.
And at a time when other financial agents are raising rates due to the difficult economic environment, Constrafor can lower the price to clients and pass the savings on to them, he added.
Meanwhile, the new capital will be used to pay salaries and finance operations. Ghauche aims to get its EarlyPay program qualified and open up Constrafor's APIs to general contractor clients.
“We are seeing a lot of new construction companies coming up and we think we have a pretty big network now, so we want to open up our platform for these companies to connect to ours and build on top of Constrafor,” Ghauche said.
