Find original article at: https://www.forbes.com/sites/frederickdaso/2020/05/21/handle-a-y-combinator-construction-tech-startup-creates-business-intelligence-for-contractors/#5c5209b834a9
Behind every new building is a construction crew pouring concrete and laying bricks to erect the structure on time and schedule. Contractors work hard to coordinate the time and labor of their workers to complete these projects within the specified budget. However, these entities, particularly subcontractors, struggle to get paid on time or secure access to much-needed capital. The cash flow issues that arise from late payments or inaccessible financing routinely leads to these small-to-medium-sized organizations going out of business. Patrick Hogan, Blake Robertson and Chris Woodard recognized the financial challenges contractors regularly face and created Handle as their solution. Handle is a construction technology startup that provides software tools to automate routine tasks associated with receiving payments and also offers financing options to construction firms. The San Francisco-based startup has raised $4.5 million in equity from institutional investors such as Global Founders Capital, Zigg Capital, and standout angel investors like Plaid cofounders Zach Perret and William Hockey, and PlanGrid cofounders Tracy Young and Ralph Gootee.
Gootee says, “Through PlanGrid, we’ve helped tens of thousands of construction companies adopt new technology. We invested in Handle, because it’s intuitive, fits nicely into existing billing workflows, and solves a pain point every construction project faces.”
The pain point of late payments within the construction industry is a canonical, enduring problem. Thomas C. Schleifer, Ph.D., a prominent construction industry expert, identifies the core issue surrounding late payments. He claims, “…construction billing procedures, which are unique, with one-sided contract terms providing designers and owners unreasonable control over the payment process.” These billing procedures, being a norm in the construction industry, have conditioned general contractors, specialty subcontractors and material suppliers in the value chain to tacitly accept unfair terms regarding payment. The unfairness stems from the complexity of the billing procedures between entities. Schleifer insists that most contractors “feel they have no influence over the payment process” as the main consequence of these norms. These standards around have immense financial consequences. Last year, late payments cost the construction industry $64 billion, according to Rabbet’s 2019 Construction Payments Report. The economic costs of late payments are directly tied to, and a consequence of the credit-based nature of transactions between entities in the construction industry.
Hockey says, “Growing up within a family of contractors, I understand the burdens that contractors and suppliers face in adopting new technology and financing. Handle has helped change this landscape by breaking down these barriers and providing a seamless experience for the entire construction industry. In general, financial management in the construction industry is extremely laborious – and even more expensive than many other industries given its scale and complexing. At the same time, it’s one of the most important parts of the construction process. I think that Handle is streamlining a lot of this financial management, which gives them a great competitive edge.”
Ongoing construction.CHRIS WOODARD
The construction industry heavily relies on credit to finance projects and facilitate payments to all relevant parties involved. Work is usually performed in advance of payment in the industry, with the apparent expectation that the supplier of materials and labor will be paid in a timely fashion. However, the lack of visibility regarding who is involved in a project is a significant issue. Also, the manual, inefficient processes that govern the payment chain, late payments have become the rule rather than the exception. These late payments cause the risk to shift downwards in the payment chain. The risk ends up being borne mostly by the subcontractors who cannot afford to be late in paying their employees. Thus, these proprietors frequently have their businesses enter bankruptcy. However, there are legal mechanisms put in place to help subcontracts ensure they get paid. The primary tool at a contractor’s disposal is to issue a mechanic’s lien.
According to Levelset, a venture-backed construction tech company, “a mechanic’s lien is a legal claim on property available to unpaid parties that provided labor or materials to a construction project.” Filing a mechanic’s lien is represented by a general four-step process. First, a subcontractor would send a preliminary notice to the payer. Then, if payment has not been made, the next step is sending a notice of intent. Assuming the subcontract has still gone unpaid, the third step is filing the lien claim form. The fourth step involves two options: releasing or enforcing the lien. If the subcontractor has been financially made whole, then the payee can end the claim with a lien release form. Otherwise, the next step is taking the delinquent payer to court. It’s critical to note that the mechanic’s lien process is done manually to this day, leaving room for error and late filings that can cost the claimant finally. The consequences of manual processes and the credit-based nature of financing construction projects impact the industry negatively.
The trillion-dollar construction market is a significant portion of the U.S. economy. Ken Simonson, Chief Economist of The Construction Association, states, “The industry has more than 680,000 employers with over 7 million employees and creates nearly $1.3 trillion worth of structures each year.” Deloitte states the following in their 2020 Engineering And Construction Industry Outlook Report, “According to the American Society of Civil Engineers, it will take approximately $4 trillion to repair the current state of the U.S. infrastructure by 2025. To meet future demands and to restore the country’s competitive advantage, the U.S. federal government has agreed, in principle, to spend $2 trillion over the next ten years, one of the biggest infrastructure investments in U.S. history.” The present value of both public and private sector construction needs, as well as the enormous future investments in U.S. infrastructure, show an incredibly lucrative opportunity for construction-focused tech companies to solve critical problems unique to the industry.
Handle provides two critical products to its customers. The first product is a set of software tools that automate key processes associated with the mechanic’s lien activity, such as lien management, deadline tracking, and online mailing. The second product is a group of financial options that include invoice factoring, material trade credit, purchase order financing, and more. These two products combine to simplify the billing complexity for its customers, thus resolving the unfairness observed in the value chain. The critical observation is that the software tools allow Handle to integrate into the payment processing for each contractor that they serve. The startup leverages the information flowing in and out of customers’ systems to securitize the credit they extend to their customers. The synthesis of the software and financing capabilities of Handle allows the startup to build detailed business intelligence on each party in the payment chain. This information would be critical for each entity to have access to the quantified reputation of the contractor involved in a particular project. If the startup can drive adoption among suppliers and contractors within the industry, the network effects at scale will allow Handle to become the standard, as the entities mentioned above can demand this software to be used among those involved in the project.
The team behind Handle consists of experienced operators with familiarity with the construction industry. Handle CEO Hogan is a serial entrepreneur who coincidentally comes from a family that has been in the construction industry for generations. Robertson, Handle’s CTO, is also a serial entrepreneur with several years of experience as a software engineer at firms like IBM and previous startups he cofounded. Woodard, the startup’s CMO, was previously Head of Growth at Help.com. Beyond their individual experiences, all three cofounders previously worked together at Tenfold, a startup backed by a16z. With these three cofounders, contractors will get a Handle on building the future of the construction industry.
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