TracFlo is currently raising at a $6.5 pre-money valuation with a 20% discount in exchange for a SAFE. This valuation is quite low in comparison to other startups currently raising funds. The discount rate is also quite attractive for investors. TracFlo has seen some early revenue, so there is further justification for this valuation. Overall, the company scores strongly in the price metric.

At first glance, the market opportunity for a company like TracFlo looks significant. The company’s own estimate pegs the opportunity at $226.5 billion. Other sources offer a similar figure with the commercial building construction market estimated to be worth $221.4 billion. Looking at the total construction industry in the US, the market should be worth around $1.29 trillion. A different source estimated the market to be worth $1.23 trillion this year, and an annualized growth rate of 5% should take it to $1.43 trillion by the end of 2025. However, it’s important to note that TracFlo isn’t a construction company, and thus wouldn’t be tapping into the full breadth of these markets. Instead, it’s a software company targeting construction companies, which is a much more niche space. The construction industry is known for being slow to adopt technology solutions, which will likely hinder the market potential for TracFlo. 

Due to the highly niche nature of TracFlo’s target market, it scores very poorly in the market metric.

When it comes to TracFlo’s team, there are two key individuals. The first of these is Khalid David, the company’s CEO and one of its two co-founders. Prior to starting the business, he was employed as a safety engineer at Turner Construction Company. Before that, he was the CEO of Bunkers Hill Construction. David’s emphasis at that firm was on sales, project management, project estimating, scheduling, cost control, and more. His role before that was as assistant project manager and project leader at KBR Building Group. While there, he focused on quality assurance and scope of work activities. Before any of these activities, David worked as an estimator at Turner Construction, where he primarily dealt with the cost of construction for various projects.

The other key person at the business is Jake Snyder, the company’s other co-founder as well as its technical lead. He did work as the president and creative lead at Jupitercow. There, he focused on designing web applications and marketing sites for startups. Prior to that, Snyder was employed as a designer and web designer at Montana Banana Web Design and Development. His emphasis there was on both front-end and back-end application development. He was also employed as the creative director at Starkman & Associates, where he managed the marketing needs of the firm’s clients. His role before that was as a designer, computer-aided designs (CAD) drafting, and 3D modeling expert at Newwork. Another position he had was as a lead designer at DigitalThink in which he focused on 3D modeling work.

In addition to these two co-founders, TracFlo has just one other member of its team. This individual has limited work experience, having graduated college in 2019. Based on the overall experiences of the team members, TracFlo’s team score is slightly below average.

Our research shows that TracFlo is a fairly differentiated product. The emphasis on pushing change orders and monetizing from that is interesting. Plus, the company’s plan to create a marketplace of lenders to cover short term construction financing looks to be unique. We have not found any other firm that provides a similar service. That said, there are plenty of other construction apps on the market today. One of them is called Textura. Through its platform, the company focuses on billing and payments. This includes change orders and requisitions. It does not offer anything regarding timesheets and tickets, and it is worth mentioning that none of its activities are available through mobile means.  Another competitor is Procore, which has a wide variety of services. Examples include scheduling, account system integration, course correction applications, and much more. However, it does not serve as an attractive platform for somebody whose primary focus is on enacting change orders. In addition, its pricing appears to be monthly or annual in nature, not on a per transaction basis like the revenue strategy that TracFlo employs. 

The one factor working against TracFlo is defensibility. The company holds no patents, and this functionality does not look difficult to replicate, especially given pre-existing competitors. Balancing this weakness against the product’s strengths, the company’s differentiators score is above average.

In some ways, TracFlo has done well for itself. The business has launched its product and is actively generating revenue. Last year, the company experienced $17.4 million worth of change orders on its platform. It has no fewer than 19 construction firms — largely focused on big union contractors — utilizing its services. However, there are some ways in which performance is lackluster. Because of its business model, the change order revenue is still small. In 2020, the business generated $57,585 in revenue. This is up from just $3,827 in 2019 but is still small nonetheless. This small amount of revenue has caused significant net losses. The firm generated a loss of $65,046 in 2019, and this grew to a loss of $75,878 in 2020. However, over the same period of time, the company saw its operating cash outflows improve from $77,763 to $64,273. It should not be surprising for losses and cash outflows to be the norm in this environment, namely because of how small revenue is. The software nature of the business helps to alleviate concerns here since scaling up the business model should be low-cost in nature. Thus, TracFlo’s overall performance score is comfortably above average.

Altogether, the risk profile of TracFlo is quite low. The only category that is considered elevated is its financial risk. Revenue increased significantly from 2019 to 2020, but significant net losses and cash outflows do imply a financial issue for the firm. If growth cannot continue at a strong pace or margins cannot improve, there could always be the risk that management will have to come back for additional capital. If that does not succeed, it could mean the end for the business. This financial risk assessment is elevated, but it is not at the high end of our scale. That means the probability of this adverse scenario happening is still slim, but it is worth watching.

The market opportunity for TracFlo is something to be wary of, due to the industry’s fragmentation and slow adoption of new technology. The industry is not growing at that fast a pace, either, so diversifying into other revenue streams may be necessary for TracFlo to continue growing. Another disadvantage is the company’s current financial status. Net losses and cash outflows cannot continue indefinitely. Without significant change to its revenue model, the company may find it difficult to capture significant revenue.

On the positive side, the valuation which management is asking investors to accept in order to participate in this round of funding is quite low. The team is experienced, and the product has a reasonable amount of differentiation to it. The company’s overall performance has also been positive,  and hopefully, that could translate into a healthier bottom line soon. If TracFlo can overcome the hurdle of slow adoption, its platform could majorly increase the efficiency of the construction industry as a whole.

TracFlo has identified a pain point in a rather large industry, and it is hoping to use technology and expertise to fix it. The company’s current raise has a lot working in investors’ favor. First, the valuation price is rather low. In addition, the company’s two co-founders are encouragingly experienced, and the product is unique enough to give TracFlo a good chance of standing out among its competitors. The company has fairly low risk and also demonstrated some early traction. 

On the other hand, investors might want to keep an eye on the company’s continuing losses. The limited market opportunity is a second concern. The construction industry is huge, but it is quite fragmented and slow to adopt new technology, which could hinder TracFlo’s prospects. Overall, TracFlo is a Neutral Deal at this time.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Daniel Jones.