Two years ago, we talked with Lior Susan, the founder of now six-year-old Eclipse Ventures in Palo Alto, Ca. At the time, the outfit believed that the next big thing wasn't another social network but instead the remaking of old-line industries through full tech stacks -- including hardware, software and data -- capable of bring them into the 21st century.
Fast forward,
and nothing has changed, not inside of Eclipse anyway. While the world has gone
through a dramatic transformation owing to the coronavirus pandemic -- never
has the U.S.'s crumbling infrastructure been so apparent to so many - Eclipse
is backing exactly the same kinds of companies that it always has and with the
same size fund. Indeed, after closing its second and third funds with $500
million, the firm quietly closed its fourth vehicle earlier this month with
$500 million in capital commitments from predominantly endowments.
This morning, we
talked with Susan about Eclipse's focus on revitalizing old industries that
remain largely untouched by tech, and why the pitch of Lior and the rest of
Eclipse's team has never been more powerful.
Excerpts from that conversation follow, edited lightly for length and clarity.
TC:
Because of where Eclipse focuses, you were long aware of the coming supply
chain crises that the pandemic brought to the fore. Have your priorities
changed at all as an investor? Did you have a to-do list going into 2020 and
has that changed?
LS: Not really.
We've been saying from inception that the infrastructure that we are living in
is 50 to 60 years old across the board. We've been all of this time in those
social software and fintech, new ideas and consumer trends. But we don't live
in the internet, we actually live in the physical world. And the physical world
is not [receiving investment] at all. But much of that innovation can be
applied to the world in which we are living, and what we want to do is bring
that $65 trillion backstage economy into the digital age.
TC: In
this go-go market, not a lot of funds are raising the same amounts as they have
previously. Why did you choose to do so?
LS: We have a
very specific strategy. We only lead early-stage investments in around 22
companies per fund, we [want] 20% to 25% with our initial check, and we double
down on companies that we think are breaking out and try to lead two or three
rounds in a row. And we know how to run the spreadsheets and we know how to
make an assumption [about] what is the enterprise value we need to create in
order to deliver alpha returns, and [that math leads us to] $500 million.
TC: The
last time we'd talked, Eclipse had also helped created and funded a company, Bright Machines, which primarily develops
software for robotic systems inside of manufacturing companies. Have you
launched any other companies in the last couple of years? I remember you don't
like the word 'incubate.'
LS: We call it
venture equity internally, but basically, we are very thesis oriented, so a lot
of our investments start with us [circling around] an investment thesis and an
area that we believe is getting really interesting. I'm right now working on a
thesis around insurance in the manufacturing space [that will cover] working
comp, facilities, assets . . . It [always] will start with a one-page thesis
and we'll talk inside the firm about it, and we'll go hunt. But we don't find
what we like in a lot of cases. This is where we're like, 'Okay, we come from
operating backgrounds. Why not roll up our sleeves and figure out how we can go
and build these companies?'
You're right
that we did Bright Machines. We've also done Bright
Insight (an IoT platform for biopharma and medtech that just
raised $101
million in Series C funding led by General Catalyst), Chord (a
commerce-as-a-service software for direct-to-consumer brands that just raised $18 million in
Series A funding), and Metrolink (a
new company that helps organizations design and manage their data flows). We've
done [this model] a [few] times where we didn't just invest in the company but
we're part of the founding team or we're carving out assets. We're trying to
keep it very flexible.
TC:
Interesting that you couldn't find an insurance company focused on the
manufacturing industry that you like.
LS: We have a
lot of theses like that. We see a lot of horizontal business models and tech
that [could work well] in the verticals where we're playing and that we know
need solutions. So, can you do a Slack for construction, or can you find the
right people to build a Lemonade for manufacturing, or can you find the Shopify
for industrial assets or spare parts?
TC: What
size checks are you writing?
LS: I'd say $3
million to $4 million initial checks and up to $20 million or $25 million in a
Series B, but you will find a lot of our companies where we invested $150
million plus over the lifetime of the company.
TC:
Which company has attracted the most from Eclipse?
LS: I'd guess
Cerebras [Systems, which reportedly makes the world’s largest
computer chip].
TC: What
do you make of what we're hearing from the new administration in the U.S. on
the infrastructure front. Do you think it's talking about pouring money into
the right verticals?
LS: I was on a
call with the manufacturing task force on Monday, and I will tell you --
without getting into politics at all, because that's above my pay grade -- that
the current administration is going to pour hundreds of billions of dollars, if
not trillions of dollars, into upgrading the infrastructure of this country. And
it's going to be semiconductors, batteries, manufacturing, industrial
infrastructure as a whole . . .
[I think last
year's ventilator shortage made clear] that we'd lost 100% of the manufacturing
capabilities of this country and Western countries as a whole. And I think
everyone now understands that you're going to see a massive swing of investment
in infrastructure and the only way to do it is through technology, because we
actually don't have a million people here that want to [work on an assembly
line]. We actually need automation lines and software and computer vision and
machine learning and everything that Silicon Valley is really good at.
TC: You
have insight into what's happening on the semiconductor front through Cerebras
and other bets. There's obviously a huge chip shortage that's impacting
everyone, including the
auto industry. How long will it take for supply to catch up to
demand?
LS: I think
we're going to see some big changes, but it's going to take many, many, many
years. This is not software, we cannot bring everything up [to speed overnight]
as you actually need fabs and cleaning rooms and assets. It's pretty
complicated.
It's going to
get worse in the next couple of quarters. It's good for some of our companies
that are working on the problem, but overall, as an economy, it's pretty bad
news.
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