Eclipse Ventures Raises $500M to Digitize Traditional Industries

Eclipse Ventures: Investing in the Future of "Real World" Industries

Two years prior, a discussion was held with Lior Susan, the founder of Eclipse Ventures, a six-year-old firm based in Palo Alto, California. The firm’s core belief centered on the potential for revitalizing established industries through the integration of complete technology solutions – encompassing hardware, software, and data analytics – to modernize them for the 21st century, rather than focusing on yet another social networking platform.

A Consistent Vision

Moving forward to the present, this foundational perspective within Eclipse remains unchanged. Despite the significant global shifts brought about by the coronavirus pandemic, and the heightened awareness of the U.S.’s deteriorating infrastructure, Eclipse continues to support the same types of companies and maintains the same fund size. The firm recently finalized its fourth fund, securing $500 million in capital commitments, primarily from endowment sources, following the successful closure of its second and third funds, also at $500 million each.

Focus on Revitalization

This morning, a conversation took place with Susan regarding Eclipse’s dedication to reinvigorating older industries that have largely remained untouched by technological advancements. The enduring relevance of Eclipse’s approach was also discussed. The following are excerpts from that conversation, lightly edited for brevity and clarity.

Supply Chain Resilience and Investment Priorities

TC: Given Eclipse’s focus, you were already cognizant of the impending supply chain challenges that the pandemic exposed. Have your investment priorities shifted in response? Did you have specific goals entering 2020, and have those goals evolved?

LS: Our perspective has remained consistent. From the outset, we’ve recognized that the infrastructure underpinning our society is, on average, between 50 and 60 years old. While considerable investment has been directed towards social media, fintech, and emerging consumer trends, the physical world has been comparatively neglected. However, innovation developed for the digital realm can be effectively applied to the physical world, and our aim is to integrate the $65 trillion “backstage economy” into the digital age.

Fundraising in a Dynamic Market

TC: In the current investment climate, many funds are not raising capital at the same levels as previously. What motivated your decision to proceed with a $500 million fund?

LS: We operate with a highly defined strategy. We concentrate on leading early-stage investments in approximately 22 companies per fund, aiming for a 20% to 25% ownership stake with our initial investment. We then strategically increase our investment in companies demonstrating significant growth potential, often leading two or three subsequent funding rounds. We meticulously analyze financial projections and determine the enterprise value required to achieve superior returns, and this analysis consistently supports a fund size of $500 million.

Venture Equity and Company Creation

TC: During our last discussion, Eclipse had facilitated the creation and funding of Bright Machines, a company specializing in software development for robotic systems within manufacturing. Have you launched any other companies in recent years? I recall you prefer not to use the term “incubate.”

LS: We internally refer to this process as “venture equity.” Essentially, our investments are driven by specific theses, often beginning with an area we identify as particularly promising. I am currently developing a thesis focused on insurance within the manufacturing sector, encompassing workers' compensation, facilities, and asset coverage. This process invariably starts with a concise, one-page thesis, followed by internal discussion and targeted exploration. However, we don’t always readily find companies that align with our vision. This is where we leverage our operational experience to proactively build these companies.

Recent Company Launches

You are correct regarding Bright Machines. We have also established Bright Insight (an IoT platform for biopharma and medtech, recently securing $101 million in Series C funding led by General Catalyst), Chord (a commerce-as-a-service platform for direct-to-consumer brands, raising $18 million in Series A funding), and Metrolink (a new entity focused on helping organizations design and manage their data flows). We have successfully employed this model multiple times, either co-founding companies or carving out assets, while maintaining a flexible approach.

Identifying Market Gaps

TC: It’s noteworthy that you couldn’t identify an existing insurance provider focused on the manufacturing industry that met your criteria.

LS: We encounter numerous similar situations. We observe horizontal business models and technologies that could be highly effective within the specific verticals we target, verticals that demonstrably require solutions. For example, could we develop a Slack equivalent for the construction industry, or a Lemonade-style insurer for manufacturing, or a Shopify platform for industrial assets and spare parts?

Investment Check Sizes

TC: What is the typical size of your initial investments?

LS: We generally provide initial checks ranging from $3 million to $4 million, with the potential for follow-on investments of up to $20 million or $25 million in a Series B round. In many cases, our total investment in a company exceeds $150 million over its lifetime.

Largest Investment to Date

TC: Which company has received the most significant investment from Eclipse?

LS: I would estimate Cerebras [Systems, known for its development of the world’s largest computer chip].

Infrastructure Investment and Government Policy

TC: What are your thoughts on the infrastructure plans being discussed by the new U.S. administration? Do you believe the proposed investments are directed towards the appropriate sectors?

LS: I participated in a call with the manufacturing task force on Monday, and I can share – without delving into political considerations – that the current administration intends to allocate hundreds of billions, potentially trillions, of dollars to upgrading the nation’s infrastructure. This will encompass semiconductors, batteries, manufacturing, and industrial infrastructure as a whole.

Reshoring Manufacturing Capabilities

The ventilator shortage experienced last year underscored the fact that the U.S. and other Western nations have largely lost their domestic manufacturing capabilities. There is now a widespread understanding that a substantial shift in investment towards infrastructure is necessary, and technology is the key to achieving this. We simply do not have a million people willing to work on assembly lines; automation, software, computer vision, and machine learning – areas where Silicon Valley excels – are essential.

Semiconductor Supply and Demand

TC: Given your involvement with Cerebras and other investments, what is your assessment of the current semiconductor shortage impacting industries like automotive? How long will it take for supply to meet demand?

LS: I anticipate significant changes, but it will take many years to resolve this issue. Unlike software, we cannot rapidly scale up production; establishing fabrication plants, cleanrooms, and acquiring the necessary assets is a complex and time-consuming process.

The situation is likely to worsen in the next few quarters. While it presents opportunities for some of our portfolio companies working on solutions, it represents a significant challenge for the overall economy.