100% Fire-Proof Homes - should you invest?

WEIGH. THAT. STARTUP.

I've got another exciting startup that I’m throwing on the scale. Hibertec is as ambitious as they come - they have a unique solution for protecting homes against wildfires. A sprinkler system? Fire-resistant walls? Nope - they've developed equipment that will lower your home into the ground and seal it off with a titanium lid in the event of the fire.

• 🏠 Whack-a-home: Hibertec homes disappear before wildfires can strike

• ⏬ A sinking feeling: Some concerns with their solution

• 🔥 Fire up the rating: Will I invest in Hibertec?

WHACK-A-HOME

Wildfires have gotten out of hand, particularly in California.

Half of California's 20 deadliest wildfires have occurred in the past two decades. One quarter of California, more than 25 million acres, is now classified as under very high or extreme fire threat. And more than 25 percent of the state's population lives in these high fire-risk areas.

It’s gotten so bad that major insurance providers have either halted or greatly reduced new policies from being issued in the state. It’s simply become too expensive for them to provide coverage to these high-risk homes.

California is throwing everything it has against the wildfires: fire-retardant sprays, fuel reduction planning, and consumer education. But Hibertec has figured out a way to protect your home at a nearly 100% success rate. You see your house can't burn down….if it isn't there. Hibertec has designed homes that can retract underground in the event of a wildfire.

Hibertec can't retrofit existing homes with their system, but they've designed 3 home formats to be built from the ground up. The houses sit over a large pit, held up by large hydraulic supports. When needed, those supports can lower the home into the pit within 15 minutes. Once underground, the home's exterior is sprayed with fire-resistant spray and a titanium alloy cover seals off the top of the pit.

This process requires engineering mastery, and the Hibertec team has spent the past 3.5 years designing their system from the ground up. For example, the team had to build in a sewage pump to drain any potential pit water before lowering the home. All the home's utilities had to be designed in a way where you could safely disconnect them temporarily during the lowering process. And of course, being able to design supports that could raise and lower a multi-ton building on a moment’s notice.

The company plans to use the funds in this round to build out a full-scale prototype on the outskirts of Los Angeles. The site will serve as a proof-of-concept and marketing tool to garner attention from media outlets.

To get to this point, Hibertec is raising money at a $15M valuation on Republic.

A SINKING FEELING

Lower your….expectations

Hibertec’s innovative solution comes at a critical time. Wildfires have ravaged California and are showing no signs of slowing down. But I have several doubts about how realistic their vision is, and whether this investment makes sense. Let’s dive in:

Comparability

First off, this is a nice feature for a home to have - but is it worth it for home-buyers? Hibertec is estimating that its homes will cost roughly $2M at the onset. Their homes look nice as you can see above, but they currently max out at 4,000 square ft ($500/sq ft).

Homebuyers are going to compare that with alternative options at a $2M price range:

Both of these options are under $2M in California, and are almost half as expensive on a per sq ft basis. Homebuyers are going to need to sacrifice a good amount of space to opt for a Hibertec home, which I don’t foresee happening on a large-scale basis.

PR Nightmare Potential

Hibertec claims their solution is 100% successful, but for something this complex I’d probably shave off a percentage point or two. Hibertec advises that people should not stay in their homes when it goes underground, but I worry that potential customers may not heed their warning - especially when quick action is needed.

All it takes is for one family to get trapped underground or worse - burned alive, for this company to crumble. Something that probably won’t happen, but I like my companies to be a little more durable than that.

Changes to Prop 103

California’s Prop 103 is legislation that protects homeowners from exorbitant home insurance rates. It’s also the reason major insurance companies have pulled out of the state.

In short, Prop 103 makes it very challenging for insurance companies to raise their policy rates by meaningful amounts. After a slew of wildfires, insurance companies need to raise their rates in order to have enough capital to pay their members.

Prop 103 prevented them from doing so, and many decided to pull out of the state to avoid putting themselves in a bad financial position. Hibertec is making the case that their ‘fire-proof’ homes will be the big winners in the absence of insurance policies.

I think this is something that sounds right, but won’t really have an impact. Most banks require home insurance when issuing a mortgage, so it’s not like consumers will be living in Hibertec homes without any insurance.

Also, many are aware that Prop 103 is outdated, and there are efforts to update it. My guess is that the top insurance companies return within the next 5 years.

Lack of Funding

Hibertec is still merely a concept at this point. They plan on using $815k of raised funds to build their full-scale prototype. I imagine the prototype may cost even more than that, since it’s their first build and they will certainly encounter issues along the way.

Here’s the problem - if they don’t raise a million dollars they can’t really do anything. According to their Form C, Hibertec only has $7,827 in cash.

Hibertec has been live for a full 2 weeks at the time of this publication. in that time they’ve only managed to raise $59,000. We’ve seen data from Kingscrowd that 53-95% of all equity crowdfunding investment happens within the first 14 days of a startup’s campaign.

That means that Hibertec at most is projected to raise around $111,320 during this round. This leaves them well short of being able to build their prototype and dead on arrival in my books.

WILL I INVEST IN HIBERTEC?

Cool idea, likely won’t work out.

I admire their mission to protect people’s homes, but this is a strong no for me. Hibertec does not have the capital to see their idea come to life, and they’ll always be one PR nightmare away from losing everything if they do.

Past that, I don’t see this being in huge demand with consumers given how much space they would need to sacrifice to afford having a pit under their home.

Hibertec cannot be retrofitted to existing homes and so even if there is demand, they’re strongly limited to (pricey) new homes in high wildfire-risk areas. It’s too narrow of a market and doesn’t justify the many risks you’d be taking on. That’s my take.