With $2.9 million in annual revenue for 2022, The BuildClub is appropriately valued at $37 million. A revenue multiple of around 12x is on the lower end for the online private markets, making for a high price score.

U.S. home improvement supply sales topped $577 billion in 2022. Across multiple sources, the compound annual growth rate of the home improvement store market is pretty low — none report more than 5%. 

Home improvement supplies make up a massive and fragmented market. There are large corporations like Home Depot down to small neighborhood shops. There is plenty of room for growth, but no shortage of competition. As reflected by the growth rate, the market — though large — isn’t going to take off anytime soon. The growth is meager, but steady. The market is consistent year over year. There will always be demand, but it is unlikely to ever explode.

The BuildClub founder Stephen Forte is a former U.S. Marine and self-taught software engineer. He founded Ascendent Systems in 1998, a voice mobility solution for wireless carriers. After raising more than $20 million to build and scale, he sold the company to Blackberry in 2005. He spent 10 years in Asia running and scaling mid-market companies and took another corporation, Coats, public in the U.K. 

He is no stranger to raising capital and scaling. He prides himself on bringing high tech to low-tech industries, which he does at The BuildClub with home improvement supplies. His track record suggests that he will have no problem scaling The BuildClub to an eventual exit. The rest of the team consists of customer service representatives, developers, and engineers for a total of 11 members (some of whom are part time). 

The BuildClub competes indirectly with legacy hardware stores like Lowe’s and Home Depot but finds more direct competition in smaller, local supply runner companies like TommyRun. Because The BuildClub is considered a sourcing solution over a hardware supplier, it sits in an unpopulated niche. The end product is the supplies, so it operates in the building supplies market, but the tech-enabled solution makes hardware suppliers indirect competition. There are fewer direct competitors or sourcing and delivery solutions.  

Construction and home improvement is a low-tech industry. So The BuildClub’s technology integration is pretty unique in the market. A tech-enabled solution can sometimes result in better pricing for the end user. For example, The BuildClub algorithms take in digital inventory. The company works with some larger retailers that give the company call sheets. The systems can then dictate the best supplier closest to the location with the best price on both sides. In the past, cross-shopping had to be done manually, so The BuildClub’s tech saves time and money. The solution also saves contractors and builders money that would go into hiring a sourcing professional, allowing them to operate on a leaner, more efficient model. By digitizing the process, The BuildClub also offers full receipt management and the ability for site supervisors to create approved shopping lists for their teams.

That said, one-off purchases — say, a drywood panel — have similar pricing across Home Depot, Lowe’s, and The BuildClub. The BuildClub tacks on delivery fees. Home Depot and Lowe’s have some delivery offerings, though The BuildClub offers two-hour delivery from 8:00 a.m. to 4:00 p.m local time seven days per week. Since The BuildClub cross-sources, there are never products out of stock. Founder Stephen Forte claims that the buyer relationships do offer significant price discounts with bulk purchases, fueling government and other large-buyer contracts. For example, the company recently announced an initial order of $50,000 of concrete for the LA airport project.

The BuildClub has shown impressive annual revenue growth of 158%, with annual revenue of $2.9 million for 2022. The company is burning $188,852 monthly, but Founder Stephen Forte anticipates being cash flow-positive in 2024. Expanding the service is capital-intensive — the team will have to spend more than, say, a software company at this stage to have the same reach.

Stephen has raised a total of $4.1 million in prior rounds from both venture firms and large construction companies. Industry leaders and venture firms backing the project is a good sign that insiders believe the company solves a true problem in the industry. Overall, The BuildClub has shown strong revenue growth and has impressive backing, but it will have to burn quite a bit to continually expand. The company will need to focus on managing costs to ensure its growth is sustainable. 

Despite its promising business model and growth potential, The BuildClub faces several challenges that could hinder its success. Firstly, the company operates in a highly competitive industry, with established players such as Home Depot, Lowe’s, and Amazon. These competitors have the advantage of economies of scale, established brand recognition, and vast distribution networks, which could make it difficult for The BuildClub to gain market share. Despite functioning primarily as a sourcing solution, The BuildClub’s end product is the same as the one these giants offer — and this market, though stable, is low-tech and resistant to disruption. Unless a customer purchases supplies in bulk, it may be hard to justify buying through BuildClub and paying delivery fees. Many of these giants offer delivery services and products at similar or cheaper prices (depending on quantity), though The BuildClub has more prompt delivery. 

Additionally, the company’s plans to expand into new markets and offer additional services will require significant investment and could strain its financial resources. The solution is geographically limited, though founder Stephen Forte claims he and his team have the process of expansion into a new city down to a few weeks. They will continue to launch new geographies every week or two until they have a nationwide presence. 

It should also be noted that the elevated financial risk rating is the result of the $2.1 million in long-term debt pulled from the company’s filed financials. Stephen clarified that the debt is from convertible notes raised in prior rounds, making the true financial risk much lower.

The BuildClub is a highly differentiated, tech-enabled sourcing solution that could revolutionize a pretty stagnant industry. The algorithmic sourcing systems offer customers quality supplies delivered straight to their work sites. This is a disruptive solution in a large, stable market that is not going away. With more than $2.9 million in revenue for 2022 and $4 million in funding, there is an obvious need for The BuildClub’s solution. 

Founder Stephen Forte’s ability to execute at these early stages is unsurprising. He has an impressive track record of leading and scaling tech companies, one of which he sold to Blackberry. At $37 million, the company is appropriately valued for investors looking to get in on this round. Finally, the team has plenty of room to scale geographically. As Stephen and the team enter more markets, the solution will begin to market itself by word-of-mouth and become a more accepted alternative to in-person purchasing.

The BuildClub is a sourcing solution for building and home improvement supplies that’s aiming to become the “Amazon for building materials.” The company sources a wide range of materials and offers same-day delivery within two hours, seven days a week. With annual revenue of $2.9 million in 2022, The BuildClub is fairly valued at $37 million. 

The U.S. home improvement supply market is worth more than $577 billion, but growth rates are modest. The company competes with larger retailers like Home Depot and Lowe’s, as well as smaller local suppliers. The BuildClub differentiates itself through technology integration, round-the-clock delivery, and efficient sourcing. However, the company will face challenges in a competitive industry dominated by established players that may be resistant to technological upgrades.

Despite the challenges, The BuildClub’s tech-enabled solution has the potential to disrupt the industry. Founder Stephen Forte’s track record in scaling companies and raising capital is impressive. The company has shown strong revenue growth and has received significant backing from venture firms and construction companies. While competition is fierce, The BuildClub’s unique offering and ability to scale geographically could drive its success. Managing costs and ensuring sustainable growth will be crucial for the company’s future.

Report written by KingsCrowd Investment Research Manager Olivia Strobl on May 24, 2023.