Cerca Homes — the New Way of Building American Homes

Using a new technology — the Open Air Panel System (OAPS) — and outsourcing production to a global network, Cerca Homes revolutionizes the US residential construction industry by faster speed, lower cost, and infinite flexibility.

As you know, I have been building Robinland — an alternative financing fundraising platform for real estate developers — since Sept 2021. In 2022, other than finishing our seed round led by Nyca, Relay and Agya, and passing MakerDAO community’s greenlight poll, the most important thing was to open up our deal pipeline — sourcing high quality real estate projects around the US. During this process, me and my co-founders Venus and Zach met with a number of interesting projects, among which, Ohad and Ori and the Cerca Homes they were building really caught my eyes.

Ohad — Boy Band Music Star turned Chinese Factory Expert

Ohad had a life story that could well be turned into a movie. While he was in Canada during his high school years, he started a boy band, and was soon discovered by one of US’s most famous record producers Lou Pearlman, the person behind some of the most famous boy bands in the 1990s, including Backstreet Boys. With Lou’s help, Ohad’s band soon became so famous that he was recognized all over the place when he walks on the streets, and very soon he decided to drop out of school & all-in his music career.

He spent some years living ‘The Life’ — parties, boats, private jets, world tours, you name it. But it didn’t last for very long — soon people realized Lou was running one of America’s biggest ponzi scheme, and that explains where all the $ for the extravagance came from. The worst part? Given that at the time Ohad was not yet 18, Lou held in custody all his earnings. When Ohad realized it and tried to locate him, Lou has apparently disappeared, together with all these boy bands’ money.

So all of a sudden, Ohad went from *the* star living the life, to having nothing — no career, no money. He had to go back to his hometown in Canada, and wait tables to make ends meet.

But very soon an opportunity came up — someone cold called Ohad, saying that there was an idea that they’d like his help on. To Ohad, even though it sounds fishy, he had nothing to lose at that point, and agreed to meet.

It turns out that it was someone who had an idea for a portable stereo that can be turned into a headphone — think Transformers for Headphones. The person had the idea and tech, but he knew he needed someone in the music industry to make it work and truly commercialized. And Ohad, with his profound experience in the industry and well established connections, was no doubt a top choice.

‘What do you need me to do?’ Ohad asked.

‘Go to China, and monitor the headphone productions in its factories.’

Sounds crazy? Yes it is crazy. But to Ohad, he had little to lose at that time, and $1200/mo from a job monitoring workers in factories in China doesn’t sound much worse than waiting tables in Canadian restaurants.

1 month later, Ohad is in China, hands dirty, looking over all steps of production for this headphone. The person who contacted him? He was in China for a month, but soon left and went back to Russia, leaving Ohad all alone by himself, in a different country, using a different language, learning about a brand new industry — industrial production.

While Ohad was in China, one thing strike him — when he just arrived, there was a construction site just across from the street from his factory, with just the foundation work being started. 3 months later, it is now a 50-story skyscraper! To Ohad, this was unbelievable, because in the US or in Canada, even building a 2-story Single Family Home takes 1 year if you’re lucky.

This is the first time he was strike by the ‘Chinese speed’ — little did he knew that he would be building his next venture, Cerca Home, precisely leveraging this technology arbitrage.

Not only did Ohad learn about the Chinese speed of building houses, he also was able to develop a strong network with local factories in China, over the three years he was there, and learnt in depth about every step about industrial production that was required to make a successful product.

With all the hard work, Ohad was finally able to bring home the first successful commercializable prototype of Boomphones, which quickly got widely popular among celebrities with ______ and ______ (names of specific celebrities) endorsing it. However, the IP of Boomphones was soon copied by a rather famous brand, and Ohad had to spend 5 years in an IP lawsuit. They won, but it was also detrimental to the business, and Ohad eventually decided to pivot to a new idea.

Residential Construction in the US — Slow & Expensive, Yearning for Revolution

As you might know, I studied the housing and real estate sector during my PhD in Economics at Stanford University 2016–2021. Even though most arguments were contentious, one thing that people can indeed agree upon (usually) is that America does not build fast enough. The graph is taken from the National Association of Realtor’s website: for every new job added, only 0.5 building permit is issued in the US. What this means is that for most places in the US, the speed of residential construction is not high enough to satisfy the need from population/labor force growth. And as a result, what we have is perpetually high house prices, higher and higher house price to income ratio, and worsening affordability.

The reason why we have a shortage of housing supply is multi-fold. First, with the hit of COVID and surge of working-from-home, the demand for residential housing suddenly increased. Second, the US labor force is aging, and in 2021, 400k openings remain unfilled in the construction sector (source). Third, and most importantly, there has not been much innovation in the construction sector — workers and equipment come on-site, from foundation work to wood framed structures to dry walls — the process of putting together a SFR home has not changed for decades.

The reason why we see huge drop in prices in consumer electronics, for example, over the past decades, is that production of such goods is batch processed in factories, with modularized units, outsourced to a global production network. For example, a phone or a car is a collection of its parts, from chips to batteries to the board, each of which is produced in a different part of the world, using an assembly line that has been optimized for speed and minimal human intervention to, and can be parallelized.

Compared to the above, a world in which, when you order a phone or a car, a set of US workers come to your home, stand in front of you and start making the chips, battery and board one after another sequentially, until it is done, with this exact same process done for every different customer, sounds incredibly inefficient and outdated. But like it or not, this is how residential homes are still built in the US for the most part in 2022.

Yes, there are indeed quite a lot of ADU start-ups trying to change it, by ‘building the ADU in a factory and then shipping it to you’, but what they do is simply moving the construction from on-site to a factory in the US. These start-ups typically build the entire structure in a factory, which makes the end product still very large (even if foldable), meaning it is hard for it to be built in a third country (such as China) where labor cost is significantly lower. Also, transporting these whole structures incurs high transportation cost. These start-ups also often had to build a factory in the US from ground up solely for the purpose of building its ADU units, given that it’s very specialized. The building of new factories itself poses huge operational cost.

Cerca Homes — the New Way of Residential Construction

So when Ohad explained to me what Cerca Homes was doing, it felt to me it was Bill Gates explaining the first Windows operations system or Steve Jobs explaining the first iPhone — It strikes me as truly ‘First of its Kind’ type innovation, and will fundamentally change how residential construction is done in the US and beyond.

To me, Cerca is ‘Lego for Homes’ — instead of building structures from scratch onsite from raw materials like lumber or bricks, it transformed construction into 2 steps:

• Manufacturing a set of ‘smallest viable modules’ using low cost oversea labor & production network
• Assembling those minimum viable pieces into structures of all shapes & types onsite in the matter of 1 day

This is essentially what the ‘Open Air Panel System’ (OAPS) (proprietary to Cerca) is all about:

It turns out that there are a lot of repetitiveness across different residential homes — why not find the similarities, create a set of re-usable, combinable pieces, so that these small pieces can be manufactured anywhere in the world and easily transported to the US, and then assembled onsite quickly?

Even though this sounds like a simple idea, it took Ohad and Ori a matter of 4 full years to fully develop the prototype, switching from using wood to using steel (which was an important step in making it commercially and technologically feasible), pass all the required code with the CA government, find factories in China that have the expertise to manufacture the panels, locate stable sources of material, secure stable pipelines for transportation, and finally bringing it to mass production.

What really impressed me was that, not only did Cerca invent a new framework of construction: manufactured modules + assembly, but the founders had pushed the efficiency of each step in the process to its limit:

• The modules were manufactured in countries with the combination of low labor cost & fast speed such as China. Unlike other ADU start-ups who tend to have their production in the US, thus still suffering from the high labor cost in the US, Cerca outsource production to a global production network to arbitrage the results from globalization
• Modules were pre-fit in factories for precision. One of the most famous ADU startups who failed miserably had a story that went like this: their units were all wood based, and after those parts having been stored for 6 months to a year without proper treatment, they warp and deforms and after they’ve been shipped onsite, they cannot fit together anymore. Precisely because of this failed competitor, Cerca adopted metal/steel instead of wood panels, and make sure to first put all the pieces together in its Chinese factory to make sure they fit together before shipping it to their customers
• Instead of owning full factories, Cerca get flexible quota for production capacity from its manufacturing partners. For most ADU start-ups, one of the first thing they do was to develop a complete factory of themselves, which itself is a huge project, and is extremely operational heavy and risky. Cerca, instead, simply asks for production quota from its manufacturing partners (i.e. factories) in China. This means they can easily scale up or down, and only pay for what they need, and never have production lines idled or unused.
• Cerca operates with no working capital, because it gets paid by its customers in full upfront. Most ADU start-ups require a huge amount of working capital because they first use their balance sheet capital to produce, and then collect funds back from their customers after installation. Cerca, instead, does the opposite: Cerca first collect the full cost of production from its customers, and then start manufacturing that unit. This means they are never ‘at risk’ and does not need to heavily rely on debt or equity financing to scale. And the reason why the customers are willing to pay upfront was precisely because of how fast production was: it can take as soon as 1 month to get their units in their backyard, unlike waiting for 1+ year with most other ADU start-ups.
• Assembly takes as short as an afternoon to be done. The first question I had was — what about the foundation? It turns out Cerca had it solved all along: with 6 deep pillars installed into the ground, this structure can hold weights of up to a 6-story building. After putting the pillars into the ground, the rest of the assembly takes as short as a few hours to be completed, literally shortening the ADU building process from 1 year to 1 day
• The modules can not only be combined into ADUs, but also single/multi-family, and even huge community development projects. Just like real Lego, Cerca’s modules also are infinitely combinable and customizable. Because of the way it was designed, it can be assembled into not only small structures like 960 sqft ADUs, but huge projects such as homeless shelters or affordable housing developments, bringing high quality low cost homes to the masses.

To date, Cerca Homes have already sold $4m worth of its products to retail customers, and have $14m worth of volume in signed contracts. It has not only been engaging in conversations with major retail chains such as Costco, but also entered into agreement with Brad Pitt’s Global Green project, and has signed contract with the CA government for its affordable housing projects.

Fundraising

And believe it or not, Cerca Home did all of the above with merely $500k funding from its friends&family — this lasted them from before they ever shipped a unit, to their current stage which is close to $20m in total sold volume.

Now, with a robust deal pipeline, partnership in progress with Costco, Global Green, and the CA government, Cerca Homes is raising its seed round. To me, this is a steal because they have way surpassed the ‘seed’ stage and already qualify for a series A. But more importantly, I think it’s a no brainer investment, because it is bringing something truly innovative to the construction industry in the US, a space that takes up 6% of US GDP but have had as little as 1% growth in innovation over the past decades. It’s truly time we bring construction technology up to the frontier, like what happened for the US information technology and software industry over the past 4decades, and I think Cerca Homes is the one leading this revolution.

You might ask: what’s your role in Cerca? To be honest, I’m not taking any incentives and/or any formal role, but rather, as an entrepreneur, and as someone who entered into the start-up scene because I wanted to use technology to make people’s life better, I was so touched by Cerca Homes that I wanted to let everyone knew about how cool it is, and truly wanted to see it grow.

Contact ohad@cercahomes.com or ori@cercahomes.com for more information!