Arc raises $50M to expand into electric commercial and defence boats

Los Angeles-based startup Arc Boat Company is looking to grow its commercial operations and supply electric propulsion systems to defence contractors, as part of founder Mitch Lee's broader vision to "electrify everything on the water."

To support this expansion, Arc has secured $50 million in a Series C funding round backed by Eclipse, a16z, Menlo Ventures, Lowercarbon Capital, Necessary Ventures, and Offline Ventures.

Lee said the company's move into commercial and defence sectors will not come at the expense of its consumer boat business. According to him, sport boats already generate meaningful revenue for Arc and serve as proof that the company's technology is reliable and capable — an important factor when attracting commercial customers.

The strategy mirrors Tesla's early approach. Greg Reichow, a former Tesla VP and now a general partner at Eclipse, said this path can be effective for Arc.

"The right strategy was to develop the technology, get it to work on the high end of consumer boats, then take that technology as you get some experience with it and make sure the economics really work well for the commercial sector, and you have the reliability for the commercial sector," he said. "And so that's where we're at today with Arc."

This approach appears to be gaining traction. Lee noted that strong organic interest from both commercial and defence sectors has accelerated the company's expansion plans.

"Our thesis is the entire industry is going to go electric in the same way that lawn equipment is all going electric, because it's just a way better experience," Lee said.

Arc does not plan to build complete boats for these new markets. For commercial applications, Lee said the company will follow a model similar to its hybrid tugboat project launched last year. In that case, Arc designed the vessel for a customer, Curtin Maritime, and partnered with a shipyard, Snow & Co., to construct it.

In the defence sector, Arc is more likely to act as a direct supplier of electric propulsion systems to major contractors and emerging players, citing significant unmet demand for electric powertrains.

Lee also pointed out that different factors drive commercial and defence clients.

"The pull we're seeing into commercial is driven by a combination of two things: the cost for electric going down and the cost for combustion going up," he said. "The cost of electricity is going down for obvious reasons. We are beneficiaries of the automotive R&D system. And the cost for combustion is going up because of compliance burdens, because these things are — I mean, this is my crass way of saying it, but they're cancer-spewing machines."

In the defence sector, there is an increasing focus on autonomous vessels.

"To make them autonomous, you need a step-function improvement in terms of their reliability and uptime, because you no longer have a crew of people on board turning wrenches to keep these giant main combustion engines online," Lee said.

Arc currently has a workforce of around 200 employees, and Lee said the company plans to expand its team following the new funding, particularly in production, engineering, and go-to-market roles related to commercial watercraft.

He also highlighted the benefits of operating across multiple segments.

"This is where diversification is incredibly valuable. There are unique strengths to being in the consumer space. It's got great cash conversion cycles [and] lucrative margin opportunities," Lee said. "And then you balance that out with commercial applications, which have a tremendous amount of defensibility. You can line up demand years in advance. So you balance those two things out, and they start to blend into a stable, predictable, defensible business."

While expanding into new markets always carries risks, Reichow believes Arc is well-positioned to succeed. The company employs talent from organisations such as SpaceX, Tesla, and Rivian.

"I've not yet met a company that has been able to move as quickly as Arc does in terms of developing something, whether it be a technology or product, do it very quickly, do it very efficiently, and then get fast cycles of learning on it," he said. "That's their secret weapon, and why they're going to win long term."