Creating a real estate development plan typically takes weeks of iterations and back-and-forth between developers and architects. TestFit Inc.’s proprietary algorithms finish the job in minutes.
Co-founder and CEO Clifton Harness compares the technology to the Chipotle app, which allows users to add each element of their burrito step by step. Instead of rice, beans and meat, however, TestFit’s software combines building design, construction and financing and immediately adjusts for changes.
“There’s a finite number of ways that you can solve a piece of land,” Harness said. “We enable users to customize how it’s solved, and we do it in real time.”
The Dallas-based startup’s time- and money-saving technology is attracting $20 million in financing, despite a tightening market for startups seeking backers.
Parkway Venture Capital, located in New York City and Winter Park, Fla., just invested $12 million in the company after putting up an initial $2 million in 2020. With additional undisclosed investors, TestFit’s funding totals $22 million.
TestFit is Parkway’s fourth-largest investment, joining the likes of climate disclosure and carbon management software Persefoni, online luxury furniture retailer Burrow and Sandbox AQ, a spinoff of Google parent company Alphabet Inc.
Parkway Venture Capital was co-founded in 2019 by Gregg Hill and Jesse Coors-Blankenship after the pair worked together at Frustum Inc., a computer-aided generative design company Coors-Blankenship created and sold to PTC for $70 million in 2018. TestFit is also in the generative design space, with a focus on real estate rather than industry or mechanics.
Venture capitalists like Hill spend a lifetime in pursuit of a unicorn — a startup that grows to a value of $1 billion or more. Much like their elusive eponym, unicorns are hard to come by, but Hill thinks TestFit will hit the mythical $1 billion mark.
“It’s a huge win for Dallas honestly, because they’re a unicorn in the making,” Hill said. “In the [architecture, engineering and construction] space, they’re definitely becoming a household name.”
TestFit’s fresh cash will go toward research and development, hiring more employees, expanding the sales budget, building a brick-and-mortar office in Dallas and beefing up the balance sheet.
The 17-employee team plans to expand to 50 people, and Harness wants to hire locally.
“Dallas is the most powerful housing real estate market,” he said. “A lot of our customers are here in Dallas.”
TestFit has more than 200 customers — both architects and real estate developers — who use the program to generate site plans, income statements and construction budgets with just a few clicks.
On the prospect of becoming a unicorn, Harness said TestFit might be able to grow to a $1 billion valuation, but he’s more concerned with creating technology that brings valuable information to developers and architects.
“It’s in the realm of possibilities,” he said. “But I’m more pressed upon the weight of needing to execute for the housing and architecture markets on meaningful innovation.”
Harness started out with big dreams to become an architect, but realized in his internships and job experiences, including at Streetlight Residential in Dallas, that the industry was begging for innovation.
“The whole tech stack that we were using was a fax machine, literally, trace paper, pencils and Excel. Email was kind of the most late-breaking, amazing technology,” he said. “We were making these investment decisions for $40 million to $100 million assets on the backs of envelopes, and that was a big risk.”
Harness took that risk and flipped it into an opportunity. He asked Ryan Griege, his college roommate from the University of Texas, to help create software for developers and architects that could solve feasibility problems without Excel. Today TestFit co-founder Griege is the startup’s chief technology officer.
The duo wants to put problem-solving ahead of cash.
“We’re not here because we thought we’d make a lot of money,” Harness said. “We’re here because we thought we could solve some meaningful problems and do something useful with our lives.”
One of the problems Harness thinks he can help tackle is the current housing crunch.
“Essentially, our goal is to enable capitalism to be more effective by eliminating deals that don’t work and accentuating deals that do,” he said. “In order to get housing done, we have to respect the fact that housing has to make money and has to be profitable. From a design perspective, that’s what we try to do. We try to create building designs that are realistic, that are economical, that scale well.”
As interest rates rise and recession fears loom, venture capital funding is not as easy to secure as it was during the last decade. The value of deals in the first half of 2022 dropped to $144.2 billion, compared with a record-setting $158.2 billion over the same period last year, according to National Venture Capital Association-Pitchbook.
Startup founders told The Wall Street Journal that venture capitalists are negotiating tighter deals and downgrading valuations. Even though funding is growing harder to come by, TestFit still managed to clinch a deal and received interest from multiple interested investors.
“Venture capital isn’t immediately impacted by recessions. There is a trend in the market right now to drive better value deals. I think in this case we struck a really good balance with the company,” Coors-Blankenship said. “At the end of the day, the company has continued to grow exponentially even though there have been market headwinds.”
Meanwhile, demand for Dallas-Fort Worth real estate has been booming since before the pandemic, especially among residential properties. Riding that wave, TestFit unveiled a single-family subdivision configurator tool last week. The company also offers multifamily, commercial and industrial development tools.
Despite record-high mortgage rates, mumblings of a housing bubble and a local dip in home construction, Parkway remains bullish on TestFit.
“We feel like the total addressable market is huge for TestFit. There’s still a demand for this, and there’s still growth, especially in the Sunbelt, even during a recession,” Hill said. “We still see a lot of upside at this time.”
TestFit isn’t the only player trying to innovate the real estate development market. Competitors like Australia-based Archistar and Norway-headquartered Spacemaker are also making a splash.
Parkway partners chose TestFit over the competition because of its regional North American expertise and founders they believe in.
“TestFit is a real game changer for real estate developers,” Hill said. “If anyone doesn’t have it, they’re at the mercy of the firm they’re working with.”
Harness said TestFit has a head start over competitors.
“It took us five years of the founder intimately working on the core product to achieve product-market fit for housing, the most cherished typology we have,” he said. “I don’t think anybody stands a chance. We’re 60 months in. We’ll see who can catch up.”
Like a 31-year-old whose company just received a $20 million infusion, Clifton’s confidence is still mired in disbelief at TestFit’s growth.
“I’m absolutely humbled to be here. If you were to say to me that someone at The Dallas Morning News would write something about me one day, I’d say ‘uh-huh,’” he said with a facetious nod and a deadpan stare. “We owe a lot of success to the team that’s here with us.”