Conventional wisdom tells us that the tech boom is over. The collapse of Silicon Valley Bank chilled the investment community, and the tech sector saw a correction as interest rates rose. But I would argue that we may be about to enter a new golden age of technological innovation and investment. The difference is that this time it will not be about consumers, but about industry.
Three-quarters of the $100 billion in global gross domestic product is made up of traditional industries – such as manufacturing, transportation, logistics and healthcare – that have yet to be profoundly transformed by technology. That’s changing, under what venture capitalist Greg Reichow, a partner at Eclipse Ventures, a Palo Alto firm that has invested $3.8 billion in the digital transformation of physical industries, calls ” industrial development”.
Two weeks ago, I visited one of Eclipse’s 70 portfolio companies outside of Boston. VulcanForms, an additive manufacturing company, takes Henry Ford’s River Rouge factory model, in which steel entered one end of a production line and finished cars exited the other, and the reproduced in several industries by 3D printing with metals to create parts.
VulcanForms can produce tens of thousands of jet engine parts a day, then scale to manufacturing medical implants or consumer electronics in hours. “The knowledge of how to make the part lives in the software,” says Reichow. This allows a digital manufacturer like VulcanForms to become a Red River for multiple industries. Large industrial customers can focus on their R&D, sales and marketing, rather than production, which theoretically could now be outsourced not to hundreds of suppliers in dozens of countries, but to individual factories located wherever the customers are.
It’s a big change, and manufacturing is only part of it. The desire of most companies to increase the resilience of their supply chains, coupled with the digitization of industry, has increased local production capacity in strategic sectors. A legislative push to address climate change could well create a new technological boom in the industrial sector. Many investment funds are raised to support the growth of high-tech start-ups in advanced manufacturing, mobility, energy and other areas related to reindustrialization.
“Everything we see around us, except for ourselves and the food we grow, is manufactured,” notes MIT professor John Hart, co-founder of VulcanForms. “Now, post-pandemic, several forces are aligning to reshape the way we do things. We understand the need for agile supply chains. We realize how important production is to our economic and national security. And third, we need to decarbonize, which will require the growth of new large-scale manufacturing systems.
Given that areas such as industry, energy and transport are responsible for 70% of carbon emissions, changing the way we do things will be crucial to meeting climate change goals. Printing layers of metal, for example, requires a fraction of the energy and carbon load of cutting parts out of a block of solid material.
Tech investors see huge opportunities in change. Former White House supply chain policy adviser Elizabeth Reynolds — who has spent much of the past two years dealing with port safeguards and baby food shortages — left the Biden administration to join Except, an investment fund that plans to plow up to $100 million a year into start-ups focused on industrial transformation. This includes things like additive manufacturing and materials science, but also sensors, robotics, AI, and software that will help digitize the vast number of small and medium-sized American industrial companies.
These companies tend to be very siloed right now. But in the world that people like Hart, Reynolds and Reichow envision, they would be connected like consumers are on the Internet, able to share resources and information seamlessly in a new industrial smart grid. The opportunities for productivity and growth are obvious. “It’s not about filters that let you turn cats into dogs,” says Reynolds. “Technological innovation around reindustrialization is very different, and we are on the cusp of a real revolution in this area.”
Indeed, I think we may be at a tipping point much like 2007. Back then, the introduction of the iPhone led to huge growth in consumer technology. The “app economy” has evolved and changed the way we communicate, work, play and shop. Business is about to experience something similar, a long overdue change accelerated by decoupling, the pandemic and the war in Ukraine. It is a transformation that will change the nature of our economy. It’s also a big reason why I’m still long on the Nasdaq, even though there may still be a bigger correction in the near term.
An unresolved question is whether the new industrial revolution will be a jobless revolution. Tech talent is beginning to migrate from consumer software to industry. But AI, along with the greatly reduced human labor requirements of high-tech factories, has reduced the number of people needed to do this work. Nevertheless, it should be noted that the app economy has created categories of jobs that did not exist before. If we are lucky, a new industrial revolution will do the same in ways that have not yet been imagined.
