The Gunther Report

Why GE led a $22M investment round for a smart-building startup

Editor's Note: To learn more about energy-efficient buildings, be sure to check out VERGE@Greenbuild November 12-13.

Ann Hand, the CEO of smart-building startup Project Frog did not begin her career in a green job. As an executive in training with Mobil, she ran gas stations in inner city Philadelphia. “I can tell you about the adjacencies of Kool Menthol and Orange Crush,” she says. She went on to spend about 19 years in the oil industry with ExxonMobil, Amoco and BP, where she lead global marketing around “Beyond Petroleum.”

Now Ann is in charge of Project Frog, a green-business startup which, despite the cutesy name, is serious about shaking up the construction industry. Project Frog aims not only to create better buildings -- buildings that are attractive, energy-efficient and pleasant places to work -- but also to change the way buildings are made. Its structures are “component buildings,” put together from pre-fab kits of parts, shipped by truck and assembled onsite. It’s as if you could buy a building from IKEA.

We’re trying to change the game,” Ann says. “We give people a better-looking building in half the time at the same cost or less.” Better, faster, greener and cheaper is how the company puts it. Which is a whole lot better than just greener.

I met recently with Ann Hand at a clean-tech event in Washington. Project Frog would like to position itself as a technology company, and not as a construction company or an architecture and design firm, although it employs designers, architects and experts in construction. Based in San Francisco, Project Frog has about 35 employees and it has built about 25 buildings, mostly schools, health-care facilities and government buildings.

The company was founded in 2006, and Ann, who is 44, joined as CEO at the end of 2009. Interesting aside: She got the job after meeting Chuck McDermott, a venture capitalist at Rockport Capital Partners, which has invested in Project Frog, at the FORTUNE Brainstorm Green conference.

While Project Frog is small, it has some impressive backers. There’s Rockport, a leading clean tech venture firm based in Boston. And, a year ago, General Electric led a $22 million investment round in the company and bought one of Project Frog’s buildings for its Crotonville learning center.

Photo of Green City. Urban Background. Environment. provided by vectorgirl via Shutterstock

As Ann explained it to me, Project Frog is trying to make building the way Boeing makes airplanes or Toyota makes cars. The customer for each building can make modifications to a basic design–just as an airline can customize the interior of a 747 or car buyers can choose the color and accessories they want–but the producers (Boeing, Toyota, Project Frog) are able to take advantage of precision manufacturing and economies of scale in a way that today’s construction industry, for the most part, does not.

If Boeing can assemble a 747 in eight days, why does it take 24 months to design and construct a building?” Ann asks. The reason is that so many buildings are “bespoke,” like a custom-tailored suit, although they don’t need to be.

Project Frog says it has developed “sophisticated, lean manufacturing techniques and a just-in-time delivery processes that enables us to fabricate higher quality materials that can be installed with near zero construction waste and within a predictable schedule.” Operating costs of Project Frog buildings can be 25 to 50 percent less than conventional buildings, Ann said, so customers can save substantial amounts of money during the life of the building.

Who’s buying? Kaiser Permanente, the health care provider, is the company’s biggest customer, not for big hospitals but for health clinics and doctor’s offices. Project Frog has also built a visitor’s center at the Golden Gate Bridge, and school buildings in California, Hawaii and Connecticut. It’s working with customers in the retail and banking sectors as well, including 7-Eleven.

Chuck McDermott of Rockport, who chairs the board at Project Frog, told me that Rockport invested after it became aware of all kinds of inefficiencies in the building industry through its investments in lighting, insulation and “green” concrete startups. Project Frog, he said, “was talking about starting from scratch and building efficiency in from the very beginning, at and a low cost, and that made a lot of sense,” he said.

Chuck said the response from the health care, education and retail sectors has been encouraging. Those are all large markets, with big recurring construction budgets. “If Frog can get even low single digit penetration in some of those key verticals, the company can have revenues in the hundreds of millions,” he said. As the concept is proven, new opportunities will arise.

Like building gas stations, Ann told me with a smile. Years after her first job in Philly, she oversaw construction of a “green” gas stations for BP in Los Angeles. BP had to design and build everything from a blank page, which was costly and inefficient, she recalled. Having Project Frog then would have helped.

Now, she said: “We’re building two 7-Elevens. I can’t get away from Snickers bars.”