Los Angeles-based Arc Boat Company plans to expand its commercial business and sell electric propulsion systems to defense contractors, aiming to fulfill founder Mitch Lee’s goal of “electrifying everything on the water.”
Arc secured $50 million in a Series C funding round from investors including Eclipse, a16z, Menlo Ventures, Lowercarbon Capital, Necessary Ventures, and Offline Ventures.
This expansion won’t detract from Arc’s consumer boat business, according to Lee in an interview with TechCrunch. He noted that sport boats generate significant revenue and demonstrate the company’s technology’s capability and durability to commercial customers.
This strategy mirrors Tesla’s early path and is supported by Greg Reichow, a former Tesla VP and general partner at Eclipse, who believes it’s suitable for Arc.
Reichow explained that the approach involves developing technology for high-end consumer boats, gaining experience, ensuring economic viability, and proving reliability for the commercial sector. This strategy is reportedly accelerating due to strong interest from commercial and defense sectors.
“Our thesis is that the entire industry will go electric, similar to the transition with lawn equipment, as it’s a much better experience,” Lee remarked.
Lee doesn’t anticipate building entire boats for these new markets. For commercial projects, Arc will likely collaborate as it did with a hybrid tugboat project, involving design by Arc, partnership with a shipyard, and co-building. For defense, Arc will focus on supplying propulsion systems, addressing a significant unmet demand.
Lee noted varied interests from commercial and defense sectors. In the commercial space, the shift is fueled by decreasing electric costs and rising combustion costs due to compliance burdens. For defense, there’s a focus on enhancing reliability and uptime for autonomous watercraft, reducing dependence on maintenance crews.
Arc has grown to about 200 employees, with plans for further expansion in production, engineering, and commercial market teams following the funding round.
“This is where diversification offers immense value,” Lee said. The consumer space offers advantageous cash conversion and margins, balanced by the defensibility and demand predictability of commercial applications.
Despite the risks in entering new markets, Reichow believes Arc is positioned for success, citing the company’s rapid development and learning cycles as their “secret weapon” for long-term success.