Nick Donahue’s parents were in the home construction business, so Nick Donahue spent his childhood hearing about the construction industry in the United States. His father built homes for major developers and his mother sold to major builders all over the East Coast.
Donahue was particularly interested in why designing a custom home is so expensive and takes forever, and why most people have to settle for what a developer has proposed that year. So when he dropped out of North Carolina State University and moved to the Bay Area, he ended up doing what you’d expect a college dropout to do in San Francisco. That’s why we founded the company to solve that problem.
That effort, Atmos, has raised $20 million through Y Combinator from investors including Khosla Ventures and Sam Altman, and seeks to use technology to streamline the design process for custom homes. We had a designer on staff to work with the client while the software handled the backend. The company has grown to 40 employees, $7 million in revenue, and has designed $200 million worth of homes and built 50.
Everything sounds great until you hear Donahue explain it. “It’s become a very operational business,” he told me on a Zoom call last week. “It feels like a bit of a glamorous construction company.”
In other words, it never fully replaced humans. Then the Federal Reserve started raising interest rates, and customers who had spent months designing their dream home suddenly couldn’t afford it. Nine months ago, Donahue shut it down.
Most founders might take a break here and post a few things on LinkedIn about what they learned. Instead, Donahue regrouped and started another company.
Drafted is nearly five months old, and it’s everything Atmos isn’t. There are no designers on staff. There is no operational complexity. AI-powered software that generates home floor plans and exterior designs in minutes. If you tell them your wishes, such as the bedroom and area, they will come up with five designs. Don’t like it? Generate five more and keep going until something clicks.
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The draft currently has six employees, including four from Atmos, and has raised $1.65 million at a post-money valuation of $35 million from Bill Clerico, Patrick Collison of the Stripes, Jack Altman, Josh Buckley and Warriors player Moses Moody.
Mr. Clerico led the round because he was also an angel investor in Atmos and watched Mr. Donahue build homes despite rising interest rates. Clerico didn’t need any convincing when Donahue told him about his new company over coffee. “Nick, I want you to take the money,” he said over and over again for two weeks, until Donahue agreed.
The pitch is honest. Currently, if you want a custom home, you have two options. Hire an architect (expensive and time-consuming) or buy template plans online (cheap and inflexible). Drafted falls somewhere in the middle, offering customization at a template price. A complete plan costs between $1,000 and $2,000.
The economics work because Drafted built its own AI model and trained it on real housing plans that were built and licensed. Given practical constraints, Donahue says specialized models cost almost nothing to run, about two-tenths of a penny per floorplan, compared to 13 cents for general-purpose AI.
Drafted currently only offers single-story homes, but will also offer multi-story homes and site-specific features. The bigger question is whether there’s actually a market for this.
There aren’t that many of them. Of the 1 million new homes built in America each year, only 300,000 are custom designed. Most people will either buy an existing home or choose from homes offered by major builders.
Clerico’s argument is that this is a chicken-and-egg problem. If custom designs can be created cheaply and quickly, more people will do it. Donahue compares this to Uber, which has not only replaced taxis but also made on-demand car service available to almost everyone. “There’s no reason why everyone shouldn’t have a completely custom-designed home in the future,” Clerico says.
Alternatively, most Americans may continue to be price-conscious buyers who buy what is available. The housing market has a long track record of resisting disruption.
There is also the issue of “hori”. Asked how to prevent LLM players and other vertical players from buying similar datasets and creating the same products, Donahue talked about the brand by mentioning his friend David Holz, who founded Midjourney, an AI company that generates video and images. Despite the launch of a number of new image generation models, Midjourney’s use has remained largely unchanged, Holtz told Donahue. Its customers keep coming back to create AI images.
Similarly, Donahue believes that if Draft moves quickly enough and satisfies enough customers, Draft could become the place where people design homes.
Time will tell. Since its release to the public, the costume has been seen by approximately 1,000 users each day. It’s not a huge number, but it shows steady growth for such a young product.
Meanwhile, Donahue has something very valuable that could give him an edge in the draft. It’s deep knowledge of the problem and insights gleaned from already working on it.
Pictured above are the draft staff, from left to right: Martinus Pocious, Albert Chiu, Martina Cheru, Carson Poole, Stephen Chow, and Nick Donahue.
