NUTS & BOLTS 07.01.24

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THE NUTS & BOLTS

Last week, we proudly announced Ironspring Ventures Fund II, $100M in new capital to continue our work partnering with early-stage founders who are creating change and catalyzing innovation across the industrial supply chain.  

There’s never been a better time to invest in manufacturing, construction, transport & logistics, and alternative energy, critical industrial industries. With Fund II, we’ll double down on our conviction and ability to back the entrepreneurs and teams who are revolutionizing the way we design, build, distribute, and operate in the physical world. We passionately believe in this work, and with our new fund, it's full speed ahead. 

We wouldn’t be here today without acknowledging how far we’ve come and the network of supporters who have believed in us and made our work possible. We’re incredibly grateful for our community of portfolio company founders, LPs, and broader network, who like us, are committed to creating a more productive, sustainable, and secure industrial supply chain. 

Read more about Ironspring Ventures Fund II in TechCrunch and Austin Business Journal.

Also last week we welcomed Wilya to our portfolio! Wilya, formerly Gig and Take, is an innovative B2B SaaS company transforming traditional HR practices in the manufacturing and supply chain sectors, and we were thrilled to lead their $4M Seed round. Schematic Ventures, Plug & Play Ventures, Iron Prairie Ventures, Motivate Ventures, and 25Madison also participated.

Read more about Wilya's funding news and how CEO Rahil Siddiqui is helping factories to find the right worker for the right job at the right time here.

Keep reading for the latest digital industrial news.

GET SMARTER

A monthly feature on what's top of mind at Ironspring Ventures

The Rise of the Building Material Distributors

At Ironspring Ventures, we focus on backing innovators in massive industries that make modern life possible, industries that are often out of sight and out of mind to the general public. The distribution of building materials is one of those industries that is now going through rapid transformation. While we have been deeply involved and investing in this space since our inception, building materials distribution has recently been thrust into the spotlight after three massive market movers announced the following deal activity:

• The Home Depot announced on March 28 plans to acquire SRS Distribution for ~$18.25B (16x EBITDA multiple based on SRS 2023 $9.8B revenue and $1.1B adj. EBITDA figure). The acquisition was completed last month.

• Serial entrepreneur Brad Jacobs (former CEO United Rentals and XPO) announced in early December 2023 the formation of a new company, QXO, recently netting $3.5B in private placement, to modernize building materials with a goal of reaching a $5B revenue run-rate within 3 years.

• In early June 2024, AD and IMARK Electrical announced plans to merge. This merger of equals will create a 725 location electrical division within AD, which already has 1,410 independent locations including its current electrical division.

These announcements are important to note not only because of their individual size but because of the size of the market as a whole. Construction broadly is ~14% of global GDP and ~5% of US GDP, and of the average construction project, 30-50% of the total cost is labor and the other 50-70% is materials. The building products distribution market in North America and Europe is massive, topping $800B. The digital tools for managing how building products are produced and procured have not kept pace with digital tools in other industries, presenting an opportunity for investment that is now clearly heating up. Additionally, we’d be remiss not to also call out well-covered macro topics including rising geopolitical tensions, the pandemic’s lasting supply and demand whiplash effects, and B2C expectations of rapid, digital procurement capabilities permeating into how B2B business norms are shifting. All of these continue to fundamentally reshape the supply chain networks and operational norms through the entire building products market. The rise of the building material distributor is happening now, and it’s happening fast.

For more on building material distributors and the significant opportunities we see in this "massive middle," check out our recent The Blueprint: The Rise of the Building Material Distributors. 

THE HEAVY HITTERS

🏭 Momentum in Manufacturing 

• US industrial production is up, with May seeing a 0.9% increase, the biggest gain since July 2023 and well above the expected 0.4% bump up. Let’s see if this strong activity keeps up in the coming months... 
• Check out the latest report from the Special Competitive Studies Project (SCSP), “Action Plan for US Leadership in Advanced Manufacturing, which outlines how to ensure the U.S. maintains strength in advanced manufacturing in the face of increasing global competition and in a “technology battleground defined by the application of artificial intelligence (AI) and other emerging technologies to the industrial sector.”  
• One big project in the works domestically is the Dell AI Factory, which will use NVIDIA GPUs for powering Grok, the AI model built by Elon Musk’s xAI. Musk plans to have the proposed supercomputer operational by fall 2025, and when complete, the network of NVIDIA H100 GPUs will be at least 4X the size of the largest existing GPU clusters. 
• And M&A activity is popping here too, with Wesco International Inc. completing its acquisition of entroCIM, a data center and building intelligence software company, for an initial purchase price of $30M. This acquisition aims to enhance Wesco's service offerings and provide actionable insights to customers, helping them reduce costs and improve operations through entroCIM's Central Intelligence Manager application. 
• Don’t miss SVB’s The State of Hardware-as-a-Service report, which covers key metrics driving recurring revenue in hardware businesses as well as provides a helpful landscape on where we are today with investment into hardware-enabled innovators. Bonus: Ironspring Ventures GP Ty Findley is quoted on the advantages of building a company around a HaaS sales model.

🚧 Major Milestones in Construction

• Now complete is Home Depot’s massive deal to acquire SRS Distribution for $18.25B. The transaction accelerates Home Depot’s growth within the residential contractor market and is one of several notable deals in building materials distribution recently.  
• And on the rise is Saudi Arabia, which is projected to become the world’s largest construction market by the end of 2028 (when it will reach total construction output value of $181.5B, an increase of nearly 30% from 2023 levels). This growth is driven by significant investments in residential property and large-scale projects as part of Crown Prince Mohammed bin Salman’s Vision 2030 initiative, which aims to diversify the economy and accommodate a growing population along with an influx of tourists.  
• Just getting started is construction of an $4B advanced nuclear reactor in Wyoming known as the Natrium Demonstration Project. Funded by Bill Gates, the reactor will use sodium instead of water as a coolant and will have the capacity to generate 500 megawatts and sufficient electricity to power up to 400,000 homes. 

🚚 Transactions & Transitions in Transport & Logistics

• In a major deal that will reshape the logistics industry, RXO (NYSE: RXO) agreed to acquire Coyote Logistics from UPS for $1.025B. Expected to close by the end of the year, the deal makes RXO the third-largest provider of brokered transportation in North America and will increase RXO’s customers who spend more than $1M by 80% (while generating annual cost synergies of at least $25M.) 
• Another change could come at FedEx, as the company assesses selling or spinning off its LTL (less-than-truckload) business. FedEx Freight is the largest LTL carrier in the US and is the company’s best-performing segment, with operating margins of 20% each of the past two years. A sale or spin out would enable FedEx to focus on its parcel and logistics business.  
• Also shifting the logistics landscape is the departure of US Logistics Solutions, which announced it is shutting down after filing for bankruptcy (resulting in the loss of about 2,000 jobs and removing over 500 trucks from the market). The company's closure is attributed to the sudden cessation of funding from its lender and follows a trend of significant failures in the trucking industry after both Yellow and Convoy shut down within the past year. 
• And in a move that will impact how money moves across the freight industry, Triumph Financial announced a partnership with C.H. Robinson, adding the logistics company's 450,000 contract carriers to its TriumphPay Network (which facilitates nearly $50B in broker transactions annually). This collaboration aims to streamline payment processes, enhance efficiencies, and foster growth within the transportation industry. 
• Beyond our borders, more capital is pouring into Mexico, with the Guaymas Port set to become a nearshoring hub after a $220M investment from the country’s government and a deal with the Port of Antwerp-Bruges International. This revamp aims to enhance the port’s capabilities beyond its traditional role of mineral transport, and Ford has already started a pilot project to export 2,000 cars from the port to Chile by the end of the year (potentially reducing highway transport by 2,050 miles per vehicle). 
• Greater port capacity across the globe will be welcomed, as global shipping prices have surged due to Houthi rebel attacks on vessels heading to the Suez Canal, forcing ships to take longer routes around Africa, extending journeys by up to two weeks. Since October, the cost of moving a 40-foot shipping container from China to Europe has increased from an average of $1,200 to about $7,000. The rising shipping costs and disruptions are causing significant concern for supply chains, potentially leading to product shortages and increased inflation. 

⚡Power Shifts in Alternative Energy

• In EVs, Stellantis is relocating some electric vehicle production away from China due to impending EU tariffs on Chinese-made EVs, which could reach as high as 38%. This decision, impacting their joint venture with Leapmotor, was driven by new cost thresholds set by the company in response to higher European import duties (which are set to start July 6). 
• Inspired by Europe’s recent actions, Canada is considering imposing tariffs on Chinese-made EVs as well, due to concerns about unfair competition from China's heavily subsidized industry (imports of automobiles from China at Vancouver's port increased by 460% annually in 2023). Finance Minister Chrystia Freeland announced a 30-day public consultation starting July 2 to explore potential responses, including tariffs. 
• EV talent is also on the move, as Ford has expanded the team working on its secretive low-cost EV to around 300 employees over the last year, including grabbing top talent from Rivian (50 people), Tesla (20), and Canoo (12). This strategic hiring aims to reduce EV production costs and compete with Tesla and Chinese manufacturers.  
• In addition to EV news driving alternative energy headlines, expect to hear more about nuclear power, as the Senate passed major legislation to reverse the decline of the American nuclear industry and promote the construction of new reactors to meet rising demand for green electricity. Known as the ADVANCE Act, the bill aims to reduce Nuclear Regulatory Commission fees, expedite licensing processes, and enhance international cooperation. 

FROM OUR TEAM

On Heavy Hitters: The Digital Industrial Podcast, Ty Findley speaks Special Competitive Studies Project (SCSP) Associate Directors Addis Goldman and Brady Helwig on their new report, "Action Plan for US Leadership in Manufacturing," and what it will take for the US to ensure it is out in front during a time of increased global competition and rapidly advancing technology in manufacturing. Ty also interviews SVB Senior Market Manager Jack Garza to discuss the recent "The State of Hardware-as-a-Service" report and keys to success in building a company with this business model in the current economy and funding environment.

Last month, Ironspring Ventures teamed up with Four More Capital to host an industrial innovation happy hour in Chicago. Many thanks to the great group of investors and founders who joined us for a fun night and to SVB and Kirkland & Ellis for supporting the event! 

THE DEALS & M&A

Deals

• CuspAI, a British AI engine for new materials, raised $30M in seed funding. Hoxton Ventures led and was joined by Basis Set Ventures and Lightspeed.

• GrayMatter, a Gardena, Calif., industrial robotics company, raised $45M in Series B funding. Wellington Management led and was joined by NGP Capital, Euclidean Capital, Advance Venture Partners, SQN Venture Partners, 3M Ventures, B Capital, Bow Capital, Calibrate Ventures, OCA Ventures, and Swift Ventures.

• Vecna Robotics, a Waltham, Mass.-based maker of autonomous warehouse forklifts, raised $40M in new Series C equity and debt funding from Tiger Global Management, Proficio Capital Partners, and Impulse.

• Aikido, a floating wind turbine startup, raised $4M in seed funding. Azolla Ventures led and was joined by Propeller Ventures, Sabanci Climate Ventures, Cisco Foundation, and Anthropocene Ventures.

• M2X Energy, a Rockledge, FL, gas-to-methanol startup, raised $40M in Series B funding. Conifer Infrastructure Partners led and was joined by Breakthrough Energy Ventures, Eni Next, Add Ventures by SCG, and Autodesk Foundation.

• Kinetic, a Santa Ana, Calif., digital maintenance and servicing platform for EVs, raised $21m in Series B funding. Menlo Ventures led and was joined by Allstate Strategic Ventures, Liberty Mutual Strategic Ventures and insiders Lux Capital, Construct Capital, and Haystack Ventures.

• Net Zero Co., a Swedish carbon removal startup, raised $5.5M in seed funding from Oilinvest, VARO Energy, and SilviCarbon.

• Etched, an LA maker of specialized chips for transformers, raised $120M. Primary Venture Partners and Positive Sum Ventures co-led and were joined by Hummingbird, Fundomo, Fontinalis, Lightscape, Earthshot, Two Sigma, Oceans Venture, Skybox Data Centers, and Peter Thiel.

• Formic, a Chicago-based robots-as-a-service platform for manufacturers, raised $24.7M in Series A funding. Blackhorn Ventures led and was joined by Mitsubishi HC Capital America, NEC, Translink Capital, Alumni Ventures, FJ Labs, Lux Capital, Initialized Capital, and Lorimer Ventures.

• Wilya, a New York-based provider of HR SaaS for manufacturing and supply chain companies, raised $4M in seed funding. Ironspring Ventures led, and was joined by Schematic Ventures, Plug & Play Ventures, Iron Prairie Ventures, Motivate Ventures, and 25Madison.

• Sila, an Alameda, Calif., battery materials company, raised $375M in Series G funding. Sutter Hill Ventures and T. Rowe Price co-led and were joined by fellow insiders Bessemer Venture Partners, Coatue, and Perry Creek Capital.

• Bright Machines, software-defined manufacturing company based in SF, raised $106M in Series C funding from BlackRock, Nvidia, Microsoft, Eclipse Ventures, and Jabil. It also secured $20M in venture debt from JPMorgan.

M&A, IPOs, & Fundraising

• Sixth Street Partners bought a portion of Echo Minerals' net royalty acres in the Permian and Anadarko basins, in a deal valued at more than $500M.

• Tiger Infrastructure Partners acquired Unison Energy, a Greenwich, Conn.-based energy-as-a-service platform.

• Trive Capital and Bluejay Capital Partners invested in RPM Fright Systems, a Royal Oak, Mich.-based finished vehicle logistics provider.

• TTDS, an industrial temperature management company owned by Gryphon Investors, acquired Thermal Devices, a Mount Airy, Md., distributor of industrial electric heaters, controls, and thermocouples, to manufacturers. 

• Octopus Energy, a PE-backed British power company, is entering the U.S. renewables market via the acquisition of solar farms in Ohio and Pennsylvania from Vesper Energy Development, a portfolio company of Magnetar Capital. 

• EQT agreed to acquire Constellation Cold Logistics, owner and operator of 26 large cold storage facilities in Europe, from Arcus Infrastructure Partners. 

• Nextracker (Nasdaq: NXT) acquired Ojjo, a San Rafael, Calif., solar foundation system maker, for $119M in cash. Ojjo had raised around $66M from firms like GP Energy Technology Partners and Ajax Strategies. 

• Blackhorn Ventures of Denver raised $150M for a third fund focused on early-stage digital infrastructure and energy startups.

THE JOBS

Cargado - Border Partnerships Manager (several roles)

Harbinger - Head of Production Business Processes, Equipment Engineer

OneRail - Transportation Procurement Analyst, Transportation Optimization Analyst

There are 110+ open roles on our jobs site. Check these out!