startup in Los Angeles Arc Boat Company is looking to expand its nascent commercial business and even sell electric propulsion systems to defense contractors in a bid to fulfill founder Mitch Lee’s desire to “electrify everything on the water.”
To do this, Arc raised $50 million in a Series C funding round from Eclipse, a16z, Menlo Ventures, Lowercarbon Capital, Necessary Ventures and Offline Ventures.
The expansion into these newer markets will not come at the expense of Arc’s consumer boat business, Lee told TechCrunch in an interview. He said sport boats are a category that generates “significant revenue” for Arc and helps demonstrate to commercial customers that the company’s technology is capable and durable.
It’s a plan that approximates how Tesla started, and one that Greg Reichow — a former Tesla vice president and general partner at Eclipse — said could work for Arc.
“The right strategy was to develop the technology, get it working on consumer boats, and then use it as you get some experience with it and make sure the economics work really well for the commercial sector and you have the credibility for the commercial sector,” he told TechCrunch. “And that’s where we are today with Arc.”
This approach seems to work. Lee said organic interest from commercial and defense players has been so strong that it has accelerated the startup’s plans to expand into those areas.
“Our thesis is that the whole industry will go electric in the same way that turf equipment is going all electric, because it’s just a much better experience,” he said.
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Lee doesn’t expect Arc to build entire boats for these new markets. For commercial applications, he said Arc will likely take the same approach it did with its hybrid trailer that debuted last year. This project involves Arc designing the vessels for a client (Curtin Maritime) and building them in conjunction with a shipyard (Snow & Co.). For defense, Lee said he is more comfortable being a direct supplier of propulsion systems to primes and neo-primes because there is a “huge unmet need for electric propulsion systems.”
Lee also said that future commercial and defense companies want different things from Arc.
“The traction we’re seeing in the commercial is due to a combination of two things: the cost of electricity falling and the cost of combustion going up,” he said. “Electric costs are going down for obvious reasons. We’re beneficiaries of the automotive R&D system. And combustion costs are going up because of compliance charges because these things are — I mean, that’s a silly way to put it, but they’re cancer-launching machines.”
On defense, Lee said there is a lot of attention to building autonomous boats and other vessels.
“To make them autonomous, you need an incremental improvement in their operation in terms of reliability and uptime, because you no longer have a crew of people turning wrenches to keep these giant combustion engines online,” he said.
Arc has grown to about 200 people, and Lee said he expects to add more after fundraising, especially for the production, engineering and commercial vessel marketing teams. And he sounds excited about running a company that spans multiple industries.
“This is where differentiation is incredibly valuable. There are unique advantages to being in the consumer space. It has excellent cash conversion cycles [and] lucrative margin opportunities,” he said. “And then you balance that with commercial applications, which have a huge degree of defensiveness. You can bet on demand years in advance. So you balance those two things and they start to come together into a stable, predictable, defensible business.”
While it’s always a risk to move into new products and new markets, Reichow said he believes Arc — which has many former SpaceX, Tesla and Rivian employees among its ranks — is well-positioned to succeed.
“I have yet to meet a company that has been able to move as quickly as Arc in terms of developing something, whether it’s a technology or a product, doing it very quickly, doing it very efficiently, and then having rapid learning cycles on it,” he said. “This is their secret weapon and why they will win in the long run.”
