The Prefab and Modular Graveyard: Why Industrialized Construction Has Failed

How misaligned economics, market dynamics, and capital structures created a decade of broken promises in prefabricated construction

For more than a decade, modular and prefabricated construction has been positioned as a transformative solution for the housing industry. Billions of dollars were invested in companies that promised factory-built homes, shorter cycle times, reduced waste, and improved affordability. Despite the excitement and the funding, the sector has not produced a single major exit, a durable category leader, or a scalable operating model.

This paper analyzes the structural reasons behind these repeated failures. Four critical areas of misalignment define the modular graveyard: factory economics, builder adoption and risk, the realities of the construction market, and the expectations of capital structures that funded these companies.

We explore how reliance on factory uptime, premature automation, workflow disruption, geographic fragmentation, and venture-driven growth expectations created an unsustainable foundation. We argue that modular did not fail because industrialization is impossible. It failed because the first generation pursued a model that did not align with the economic, operational, and financial realities of construction.

A viable next model must integrate with existing builder processes, match regional demand, and use capital structures appropriate for long-cycle industrial investments.

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Introduction: A Question That Led to the Graveyard

Earlier this year, I posted a question on LinkedIn: why did Katerra fail?

Too much capital. Cost overruns. Silicon Valley tech bros trying to operate in a highly mature industry. These answers felt incomplete, surface-level explanations that missed something deeper.

A closer examination of the industry reveals not just Katerra but a broader graveyard of prefab and modular companies. The question expands: Why haven’t we seen any major exits? Why is incremental improvement the only seemingly feasible option? Why has no one succeeded at scale?

The graveyard is extensive. We all know the Katerra story: $4 billion valuation, bankruptcy in 2021 after raising $2 billion from Softbank and others. But Katerra is not alone. Veev, Entekra, Blu Homes, Factory_OS, Revolution Precrafted. All within the last decade, these companies and many others promised more efficiency in delivery, pricing, and simplicity in construction. Yet there have been no major IPOs or acquisitions, just a graveyard of defunct companies or fire-sale acquisitions at fractions of peak valuations.

This paper argues that these failures resulted from structural misalignment between the economics of factories and the need for continuous production uptime, the risk profile and adoption constraints of mid-size builders, the fragmented and unpredictable dynamics of construction markets, and the expectations of capital structures that funded industrialized construction ventures.

These forces combined to create conditions industrialized construction companies could not overcome.

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The Graveyard Tour

Before we analyze why these companies failed, we need to understand the scale and pattern of failure.

Katerra (2015-2021)

Katerra raised over $2 billion and reached a $4 billion valuation. The company pursued full-stack vertical integration: design, manufacturing, construction, materials production, even door and window factories. The ambition was to control every element of the supply chain and use technology to drive unprecedented efficiency.

By 2021, Katerra filed for bankruptcy. The company burned through billions attempting to build a construction empire that could not sustain itself.

Veev (2008-2024)

Veev started as Dragonfly Group and later pivoted to modular homebuilding with a proprietary panelized wall system. The company focused on single-family homes and ADUs with an emphasis on energy efficiency and smart home integrations. By 2022, Veev had reached unicorn status with a $600 million raise at a valuation exceeding $1 billion. The company claimed it could build homes in 30 days with 50% less carbon emissions.

By 2023, interest rates climbed and a funding round unexpectedly fell through. Veev announced it would be shutting down operations. In 2024, Lennar acquired Veev’s assets in a fire sale for several million dollars, a tiny fraction of its prior valuation.

Entekra (2016-2023)

Entekra specialized in off-site panelized framing systems for single-family homes. The company offered FIOSS, the “Fully Integrated Off-Site Solution,” to deliver fully framed home kits to site. A year after its first home in 2017, LP (Louisiana-Pacific) invested $45 million. In 2019, the company opened a $35 million headquarters and factory capable of producing 3,000 house frames per year.

At its peak, A.G. Spanos, Beazer Homes, and several other builders used FIOSS to move toward automated, off-site framing. Despite the promise to deliver 3,000 homes annually, Entekra never reached the needed scale. LP became a majority owner by 2021, leading to an organizational restructure. By 2023, LP announced it would be ceasing Entekra operations due to its inability to raise capital needed for “scalable operations through regional expansion.”

Blu Homes, Factory_OS, Revolution Precrafted

The list continues. Blu Homes raised over $100 million to build precision-folded prefab homes before shutting down in 2016. Factory_OS, backed by significant venture capital, pursued volumetric modular construction before ceasing operations. Revolution Precrafted promised affordable prefab homes and filed for bankruptcy.

The Pattern

The pattern is clear. Massive capital raises. Compelling visions. Sophisticated teams. Catastrophic failures. No major exits. No durable operating models. Just a graveyard of companies that could not reconcile the structural misalignments inherent in their business models.

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1. The Factory Economics Trap

The foundational issue in modular construction is the economic model that factories rely on. Factories only operate efficiently when they run at high and stable levels of production. Construction demand cannot provide this stability.

Factories Require High and Stable Production Uptime

Manufacturing requires continuous throughput for the economics to work. A factory typically needs utilization levels of at least 70 to 80 percent to maintain positive unit economics. The cost structure is dominated by fixed expenses: labor, facility overhead, equipment depreciation, machinery leases, debt service.

Construction demand is the opposite of stable. It is seasonal, interest-rate sensitive, project-driven, and frequently delayed or cancelled. When demand falls below the factory’s required uptime, the facility loses money immediately. This is not a temporary setback. It is a structural weakness in the factory-first approach.

Idle Capacity Is a Structural Loss

Underutilized factories bleed cash. Labor cannot be paused without losing talent. Equipment payments continue. Leases do not shrink just because production slows down. Most modular companies operated at utilization levels far below what their models required. This resulted in negative margins on every unit produced.

Entekra built a factory capable of producing 3,000 homes per year. The company never reached that scale. The fixed costs of the facility remained constant while production volumes fell short. LP’s decision to cease operations cited the inability to achieve “scalable operations through regional expansion.” Translation: the factory model required more volume than the market could provide, and expanding to new regions would multiply the capital requirements and operational complexity.

Factories Were Built Too Fast and Ahead of Demand

Many startups built large factories before they had validated demand, secured long-term builder commitments, refined production sequencing, or optimized their designs. The prevailing belief was that scale would unlock adoption. Instead, premature scaling increased fixed costs and magnified financial risk. Excess capacity became a constant drag on the business.

Katerra built multiple factories, acquired door and window manufacturers, and invested in mass timber production facilities. This vertical integration compounded fixed costs across multiple facilities, each requiring high utilization to justify its existence.

Automation Introduced Before Process Maturity

Several modular companies invested heavily in robotics and automated systems very early in their life cycles. Automation works best when processes are stable and predictable. Modular companies had not yet stabilized product designs, workflow sequences, or takt times. The result was complex automation layered on top of unstable processes, which intensified inefficiency rather than reducing it.

Veev invested in proprietary panelized systems with integrated MEP components. This required significant automation to assemble and coordinate. When production volumes did not materialize and designs needed iteration, the automation became a liability rather than an asset.

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2. The Builder Adoption Problem

The builders who could benefit the most from industrialization are mid-size regional builders. These are the firms that produce between 1,000 and 5,000 homes per year. They are large enough to benefit from improved efficiency, but too small to vertically integrate or absorb disruptions.

Mid-Size Builders Cannot Absorb Innovation Risk

Mid-size builders face pressure to maintain steady cycle times, predictable trade relationships, and lean operations. Any disruption can create serious financial consequences. Prefab requires significant changes to workflows, sequencing, procurement, and inspection. This creates risk that mid-size builders are not positioned to take on.

Entekra’s FIOSS system required builders to coordinate foundation work, panel delivery, crane logistics, and sequencing in ways that differed from traditional stick-framing. Builders who adopted the system had to retrain crews, adjust schedules, and manage new inspection processes. For builders operating on thin margins with tight timelines, this risk was substantial.

Large Builders Have the Scale but Not the Incentive

Large national builders operate with significant buying power, standardized product lines, and well-developed internal systems. They already achieve much of what modular companies promise through traditional construction methods. They have little motivation to adopt a new system that introduces new risks and requires changes across multiple departments.

Lennar’s acquisition of Veev’s assets was not an adoption of the Veev system. It was an opportunistic purchase of technology and intellectual property at distressed prices. The national builders watched modular companies fail and saw validation of their existing approaches.

Modular Demands Builders Change Too Much Too Quickly

Adopting modular construction often requires changes to framing sequences, foundation coordination, inspection processes, trade scopes, warranty processes, and scheduling and logistics. For most builders, this level of disruption is not realistic. The risk outweighs the potential benefit.

Veev promised 30-day build times and 50% carbon reduction. Builders asked: at what risk to my brand and schedule certainty? The value proposition was compelling in theory, but the adoption pathway was unclear and risky in practice.

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Process Misalignment: Modular Tried to Redefine Construction Instead of Integrating with It

A central mistake of many modular companies was the attempt to replace the entire construction process with a vertically integrated alternative. This required builders, trades, inspectors, developers, and lenders to accept major changes in how homes are built.

Traditional builders were not prepared to overhaul their processes. Trades resisted losing scope. Developers were cautious about underwriting unfamiliar construction types. This created broad friction that slowed or stopped adoption.

Katerra’s full-stack approach required every stakeholder in the construction process to adapt to a new system. This created resistance at every level. The company could not force adoption through capital or marketing.

The companies that survived longest were the ones that moved toward component-level industrialization rather than full volumetric modularization. Panelized systems faced fewer adoption barriers than fully finished volumetric modules. But even component-level approaches struggled with the misalignments outlined in this paper.

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3. The Dynamics of Construction Markets

Even without factory or builder adoption challenges, construction markets themselves introduce structural constraints.

Construction Markets Are Local and Fragmented

Codes, climates, inspections, trade networks, zoning rules, and financing practices differ significantly between regions. Modular factories struggle to produce standardized products for such heterogeneous conditions.

A wall system optimized for California seismic codes does not work in Florida hurricane zones. A heating system designed for Texas does not make sense in Minnesota. The promise of standardization collides with the reality of regional variation.

Demand Is Project-Based, Not Continuous

Factories need predictable throughput. Construction demand is shaped by land pipelines, rate cycles, local regulations, and permitting delays. It rises and falls in ways factories cannot match.

When interest rates increased in 2023, housing starts declined sharply. Modular factories that depended on continuous demand faced immediate underutilization. Veev’s funding round fell through in this environment, and the company could not sustain operations with reduced demand.

Construction Does Not Scale Nationally

A modular factory typically serves a regional radius of 200 to 300 miles. Scaling modular production requires building new factories, which multiplies risk. In software, scale reduces marginal cost. In modular, scale increases fixed costs.

LP’s statement about Entekra’s inability to achieve “scalable operations through regional expansion” captures this reality. The company would have needed to build additional factories in new regions, each requiring its own demand validation, builder relationships, and operational refinement. This was not a scalable path.

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4. Capital Expectations and Construction Reality

Perhaps the most important misalignment came from the capital structures that funded modular companies. Venture capital expects rapid scaling, high margins, repeatable unit economics, and national markets. Construction manufacturing offers low margins, high CapEx, regional limitations, and slow payback periods.

The Softbank Trap

Katerra raised $2 billion from Softbank and other investors. This capital created growth imperatives incompatible with construction economics. The company was pressured to scale quickly, build multiple factories, and pursue vertical integration to justify the valuation. Each of these moves compounded fixed costs and operational complexity.

More capital accelerated failure rather than solving the problem. The funding enabled Katerra to make larger, faster mistakes.

Interest Rate Sensitivity

Veev’s collapse illustrates the fragility of venture-backed modular companies in changing financial environments. When a 2023 funding round fell through due to rising interest rates and tightening capital markets, the company could not continue operations. There was no financial cushion. The business model depended on continuous access to capital because the operations were not self-sustaining.

Fire Sale Acquisitions

Most modular companies that were acquired were purchased for machinery, patents, or teams rather than for the value of the business itself. They did not achieve enterprise value that justified venture investment.

Lennar paid several million dollars for Veev’s assets after the company had raised $600 million at a $1 billion valuation. This was not an exit. It was a liquidation. The acquirer was buying technology and intellectual property, not an ongoing business.

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The Path Forward

Modular and prefab construction did not fail because industrialization is impossible. It failed because the first generation pursued a model that conflicted with the economics of construction, the operational constraints of builders, and the expectations of venture capital.

The prefab and modular graveyard is not a story of incompetent founders or insufficient capital. Katerra, Veev, Entekra, and others were founded by sophisticated teams with significant resources. They failed not because they executed poorly within their models, but because their models were structurally incompatible with the industry they attempted to transform.

The vision of industrialized construction remains correct. The housing industry needs productivity gains. Builders need better tools. Homebuyers need affordability. But the next generation must learn from the graveyard and focus on a viable model built around:

• Smaller, flexible micro-factories that match capacity to validated regional demand rather than building speculative capacity ahead of adoption

• Demand-driven production based on committed builder orders, not projected demand

• Components and subassemblies instead of whole-home modular to integrate with existing builder workflows rather than replacing them

• Lean process refinement before automation to stabilize processes and validate demand before investing in robotics

• Capital structures aligned with industrial assets using patient capital appropriate for long-cycle investments, not venture capital expecting rapid scaling and high margins

• AI-enabled coordination to reduce variance across the supply chain through optimization rather than replacement of human labor

The path forward is not a single factory or a fully integrated construction company. It is a system that aligns with how homes are actually built, how builders actually operate, and how capital should be deployed. Build with the industry, not against it. Match capital to the realities of construction. Integrate before attempting to replace. Validate demand before building capacity.

The next model must solve for alignment before attempting scale.